NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the significant accounting policies
applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.
General
The accompanying unaudited condensed financial
statements of Iris Biotechnologies, Inc., (the “Company”), have been prepared in accordance with the rules and regulations
(Regulation S-X) of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q and Rule
8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Accordingly, the results
from operations for the three and nine month periods ended September 30, 2016, are not necessarily indicative of the results that
may be expected for the year ended December 31, 2016. The unaudited condensed consolidated financial statements should be read
in conjunction with the December 31, 2015 financial statements and footnotes thereto included in the Company’s Form 10-K
filed on March 30, 2016.
Business and Basis of Presentation
Iris Biotechnologies Inc. (the “Company”,
“we”, “us”, “our”) was incorporated on February 16, 1999 under the laws of the State of California.
The Company efforts are principally devoted to developing solutions for the detection and monitoring of monogenic and complex genomic
diseases. The Company has generated minimal revenue to date and consequently its operations are subject to all risks inherent in
the establishment of a new business enterprise.
On April 9, 2014, the Company formed Iris Wellness
Labs, Inc., a wholly owned subsidiary and Delaware Corporation, for the purpose of developing certain business lines. During the
quarter ended September 30, 2016, Wellness Labs, Inc. began operations providing consulting and informational services to the medical
community.
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows,
the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.
Revenue recognition
The Company adopted Accounting Standards Codification
(ASC) subtopic 605-10, “
Revenue Recognition
” effective for the period ended September 30, 2016. The Company
recognizes revenue in accordance with ASC 605-10, which requires that four basic criteria be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed or determinable; and
(4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding
the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts
and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related
sales are recorded.
ASC 605-10 incorporates Accounting Standards
Codification subtopic 605-25, “
Multiple-Element Arrangements
” (“ASC 605-25”). ASC 605-25 addresses
accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
The effect of implementing ASC 605-25 on the Company’s financial position and results of operations was not significant.
The Company revenue is generated by providing
analytical and scientific information to clients and physicians to assist in optimizing health and wellness. The service revenue
is recognized when those services have been completed or satisfied.
At September 30, 2016 and December 31, 2015,
the Company had deferred revenues of $7,500 and $-0-, respectively.
Property and Equipment
Property and equipment are stated at cost.
When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts
and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property
and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.
Use of Estimates
The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the recoverability and useful lives of long-lived assets, the
fair value of the Company’s stock, stock-based compensation, fair values relating to derivative liabilities and the valuation
allowance related to deferred tax assets. Actual results may differ from these estimates.
Income Taxes
The Company follows Accounting Standards Codification
subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests
that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance
is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may
arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities
to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse and relate primarily
to stock based compensation basis differences and Net Operating Losses. As of September 30, 2016, the Company has provided
a 100% valuation against the deferred tax benefits. The periods from December 31, 2013 to December 31, 2015 remain open to examination
by the U.S. Internal Revenue Service and state authorities.
Net Income (loss) Per Common Share
The Company computes earnings (loss) per share
under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share
is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted
earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially
dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.
The computation of basic and diluted loss per
share as of September 30, 2016 and 2015 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or
if their exercise prices were greater than the average market price of the common stock during the period.
Potentially dilutive securities excluded from
the computation of basic and diluted net loss per share are as follows:
|
|
September 30,
2016
|
|
September 30,
2015
|
Convertible notes
|
|
|
36,000
|
|
|
|
26,000
|
|
Options to purchase common stock
|
|
|
1,387,696
|
|
|
|
1,957,571
|
|
Warrants to purchase common stock
|
|
|
215,300
|
|
|
|
120,300
|
|
Totals
|
|
|
1,638,996
|
|
|
|
2,103,871
|
|
Concentrations of Credit Risk
Financial instruments and related items, which
potentially subject the Company to concentrations of credit risk, consist primarily of cash. The Company places its cash with quality
credit institutions. At times, such amounts may be in excess of the FDIC insurance limit of $250,000.
Fair Values
Accounting Standards Codification subtopic
825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes
three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active
markets for identical assets or liabilities.
Level 2 - Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the
valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models
or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on
the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s cash,
accounts payable, related party advances, short-term borrowings (including convertible notes payable), and other current assets
and liabilities approximate fair value because of their short-term maturity.
As of September 30, 2016 and December 31, 2015,
the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognized its derivative liabilities
as level 3 and values its derivatives using the methods discussed in Note 5. While the Company believes that its valuation methods
are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions
to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting
date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 5 are that of
volatility and market price of the underlying common stock of the Company.
Stock based compensation
The Company measures the cost of services received
in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value
of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting
dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over
the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based
compensation expense is recorded by the Company in the same expense classifications in the statements of operations, as if such
amounts were paid in cash.
As of September 30, 2016, there were outstanding
stock options to purchase 1,387,696 shares of common stock, 1,004,363 shares of which were vested. As of December 31, 2015, the
Company had 1,957,571 options outstanding to purchase shares of common stock, of which 1,402,467 were vested.
Derivative Liability
The Company accounts for derivatives in accordance
with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including
certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives
on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the
derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated
are based on the exposures hedged. At September 30, 2016 and December 31, 2015, the Company did not have any derivative instruments
that were designated as hedges.
At December 31, 2015 through March 18, 2016,
the Company had a derivative liability due to the possibility of exceeding their common shares authorized when considering the
number of possible shares that may be issuable to satisfy settlement provisions for all existing instruments that could be settled
in shares. At March 18, 2016, upon increasing the number of common shares authorized, the fair value of the derivative liability
was reclassified to equity. See Note 5.
Research and development costs
The Company accounts for research and development
costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”).
Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and
development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has
been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present
and future products are expensed in the period incurred. The Company incurred research and development expenditures of $31,453
and $100,931 for the three and nine months ended September 30, 2016, respectively and $23,483 and $100,840 for the three and nine
months ended September 30, 2015, respectively.
Liquidity and Dependency of Key Management
To date the Company has just begun to generate
revenues, has incurred expenses, and has sustained losses. As shown in the accompanying consolidated financial statements, the
Company incurred a loss of $874,590 and $688,314 during the nine months ended September 30, 2016 and 2015, respectively. For the
period from February 16, 1999 (date of inception) through September 30, 2016, the Company has accumulated losses of $12,916,897.
Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.
The Company's primary
source of operating funds since inception has been cash proceeds from the private placements of common stock and proceeds from
private placements of convertible debt. The Company intends to raise additional capital through private placements of debt
and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or
will be sufficient to enable the Company to fully complete its development activities or sustain operations.
The future success or failure of the Company
is dependent primarily upon the Company raising funds from third parties, and the continued efforts and financial support of Simon
Chin, the Company’s Chief Executive Officer, Chief Financial Officer and the majority sharehold
e
r. As in the past,
Mr. Chin has committed to provide all necessary funding if needed to the meet the Company’s financial obligations through
2016.
Recent Accounting Pronouncements
There are various updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to a have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 2 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment at September
30, 2016 and December 31, 2015 are as follows:
|
|
September 30,
2016
|
|
December 31,
2015
|
Computer equipment
|
|
$
|
87,112
|
|
|
$
|
87,112
|
|
Office equipment
|
|
|
1,728
|
|
|
|
1,728
|
|
Furniture and fixtures
|
|
|
4,952
|
|
|
|
4,952
|
|
Manufacturing equipment
|
|
|
179,262
|
|
|
|
179,262
|
|
|
|
|
273,054
|
|
|
|
273,054
|
|
Less: accumulated depreciation
|
|
|
(249,531
|
)
|
|
|
(243,437
|
)
|
|
|
$
|
23,523
|
|
|
$
|
29,617
|
|
NOTE 3 - LONG TERM CONVERTIBLE NOTE PAYABLE
Long-term debt at September 30, 2016 and December
31, 2015 are as follows:
|
|
September 30,
2016
|
|
December 31,
2015
|
Note payable, dated June 22, 2012
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Note payable, dated December 4, 2012
|
|
|
2,000
|
|
|
|
2,000
|
|
Note payable, dated February 1, 2013
|
|
|
4,000
|
|
|
|
4,000
|
|
Notes payable, dated April 4, 2013
|
|
|
4,000
|
|
|
|
4,000
|
|
Note payable, dated September 24, 2013
|
|
|
1,000
|
|
|
|
1,000
|
|
Note payable, dated June 17, 2016
|
|
|
10,000
|
|
|
|
—
|
|
Total
|
|
|
36,000
|
|
|
|
26,000
|
|
Less: current portion
|
|
|
15,000
|
|
|
|
—
|
|
Long term portion
|
|
$
|
21,000
|
|
|
$
|
26,000
|
|
On June 17, 2016, the Company issued a $10,000
note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The
note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the
stock, an embedded beneficial conversion feature was not present in the note.
NOTE 4 — RELATED PARTY TRANSACTIONS
Officer Advances
The Company’s President and shareholders
have advanced funds on a non-interest-bearing basis to the Company for working capital purposes since the Company’s inception
in February 1999. No formal repayment terms or arrangements exist. During 2016, the Company's President advanced funds
of $115,500 to the Company. There were $290,700 and $175,200 outstanding at September 30, 2016 and December 31, 2015, respectively.
NOTE 5 — DERIVATIVE LIABILITIES
Excessive committed shares
Beginning on December 29, 2015 through March
18, 2016, in connection with the previously issued convertible debt, stock options and warrants, the Company had the possibility
of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement
provisions of these agreements after consideration of all existing instruments that could be settled in shares. This resulted
in a derivative liability as a result of the Company having a potential to settle the obligation to issue these excess shares.
The accounting treatment of derivative financial instruments required that the Company reclassify the derivative from equity to
a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of
each subsequent balance sheet date. On March 18, 2016, the Company amended the Articles of Incorporation to increase of authorized
shares of common stock from 20,000,000 to 100,000,000 thereby having sufficient authorized common shares to meet any settlement
provisions.
The Company recognized its derivative
liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation
methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at
the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that
of volatility and market price of the underlying common stock of the Company.
During the nine months ended September 30,
2016, the fair value of the net derivative liabilities reclassified to equity of $6,723 was determined using the Black Scholes
Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 404.69%; risk free rate: 1.55%; and expected
life: 7.71 years.
At March 18, 2016, the fair value of the derivative
liabilities of $450,297 was determined using the Black Scholes Option Pricing model with the following assumptions: dividend yield:
0%; volatility: 406.32%; risk free rate: 0.62% to 1.88%; and expected life: 1.00 to 8.80 years.
The following table provides a summary of changes
in fair value of the Company’s Level 3 financial liabilities as of nine months ended September 30, 2016:
|
|
Excess
Share
Derivative
|
Balance, December 31, 2015
|
|
$
|
169,082
|
|
Transfers out of Level 3 liability upon reduction of excess over authorized shares
|
|
|
(6,723
|
)
|
Transfers out of Level 3 liability upon increasing authorized shares
|
|
|
(450,297
|
)
|
Mark-to-market adjustment at March 18, 2016:
|
|
|
287,938
|
|
Balance, September 30, 2016
|
|
$
|
—
|
|
|
|
|
|
|
Net loss for the period included in earnings relating to the liabilities held at September 30, 2016
|
|
$
|
(287,938
|
)
|
Fluctuations in the Company’s stock price
are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price
increased by 122% from December 31, 2015 to March 18, 2016. As the stock price increases for each of the related derivative instruments,
the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s consolidated
balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement
of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in
the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement.
NOTE 6 - STOCKHOLDER EQUITY
On March 18, 2016, the Company amended its
Articles of Incorporation by filing a Certificate of Amendment with the Secretary of State of California to effect an increase
in the number of the Company’s authorized common shares and preferred shares from 20,000,000 to 100,000,000 and 5,000,000
to 25,000,000 respectively.
Preferred stock
From date of inception through September 30,
2016, the Company has not issued any preferred shares.
Common stock
As of September 30, 2016 and December 31, 2015
the Company has 20,877,844 and 19,607,177 shares of common stock issued and outstanding, respectively.
During the nine months ended September 30,
2016, the Company issued an aggregate of 159,000 shares of common stock for services in the amount of $40,907 based on quoted market
prices at the time of issuance.
During the nine months ended September 30,
2016, the Company sold an aggregate of 70,000 shares of common stock for net proceeds of $14,000.
During the nine months ended September 30,
2016, the Company issued 1,041,667 shares of common stock for officer compensation in the amount of $125,000 based on the quoted
market price at the time of issuance.
At September 30, 2016, the Company accrued
the subsequent issuances of 416,667 shares of common stock for officer compensation at a fair value of $83,333.
At September 30, 2016 the Company accrued the
subsequent issuance of 37,500 shares of Board of Directors compensation at a fair value of $5,210, and 36,000 shares of legal and
consulting services at a fair value of $3,006.
NOTE 7 – WARRANTS AND OPTIONS
Warrants
The following table summarizes warrants outstanding
and related prices for the shares of the Company’s common stock issued at September 30, 2016:
Exercise
Price
|
|
Number
Outstanding
|
|
Warrants Outstanding
Weighted Average
Remaining Contractual
Life (years)
|
|
Weighted
Average
Exercise price
|
|
Number
Exercisable
|
|
Warrants Exercisable
Weighted
Average
Exercise Price
|
$
|
1.00
|
|
|
|
155,100
|
|
|
|
3.41
|
|
|
$
|
1.00
|
|
|
|
131,350
|
|
|
$
|
1.00
|
|
|
2.00
|
|
|
|
60,200
|
|
|
|
3.06
|
|
|
|
2.00
|
|
|
|
60,200
|
|
|
|
2.00
|
|
|
|
|
|
|
215,300
|
|
|
|
3.31
|
|
|
|
1.28
|
|
|
|
191,550
|
|
|
$
|
1.31
|
|
Transactions involving the Company’s
warrant issuance are summarized as follows:
|
|
Number of Shares
|
|
Weighted Average
Price Per Share
|
|
Outstanding at December 31, 2015
|
|
|
|
120,300
|
|
|
$
|
1.50
|
|
|
Issued
|
|
|
|
95,000
|
|
|
|
1.00
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at September 30, 2016
|
|
|
|
215,300
|
|
|
$
|
1.28
|
|
On January 1, 2016, the Company issued an aggregate
of 95,000 warrants for services with an exercise price of $1.00 with vesting over one year and expiring five years from issuance.
The fair value of the vested warrants during the three and nine months ended September 30, 2016 of $1,489 and $13,323, and $5,248
and $18,170 for the three and nine months ended September 30, 2015, respectively, (as determined as described below) was charged
to operations.
The fair value of these vesting 2016 warrants
issued and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:
Significant assumptions:
|
|
|
|
Risk-free interest rate at grant date
|
|
|
1.01% to 1.21
|
%
|
Expected stock price volatility
|
|
|
321.79% to 408.40
|
%
|
Expected dividend payout
|
|
|
—
|
|
Expected option life-years (a)
|
|
|
4.25 to 4.76
|
|
__________________________
(a) The expected option life is based on contractual
expiration dates
Options
Option
valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated
using the Black-Scholes option model with a volatility figure derived from using the Company’s historical stock prices. Management
determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of options based
on the contractual life of options for non-employees. For employees, the Company accounts for the expected life of options based
on remaining contractual expiration dates.
The risk-free
interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the
expected term of the options. The fair value of stock-based payment awards during the nine months ended September 30, 2016
was estimated using the Black-Scholes pricing model.
In addition,
the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest.
In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of
unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual
forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the
stock-based compensation expense could be significantly different from what the Company has recorded in the current period.
Based on no historical forfeitures, the Company
estimated forfeitures related to option grants at a weighted average annual rate of 0% per year based on historical data,
for options granted during the three and nine months ended September 30, 2016 and 2015.
Employee Options
The following table summarizes options outstanding
and the related prices for the shares of the Company’s common stock issued to employees under a stock option plan at September
30, 2016:
|
Options Outstanding
|
|
|
|
Options Exercisable
|
|
|
Exercise
Prices (S)
|
|
|
|
Number
Outstanding
|
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
|
Weighted
Average
Exercise
Price (S)
|
|
|
|
Number
Exercisable
|
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.80
|
|
|
|
85,000
|
|
|
|
4.45
|
|
|
$
|
0.80
|
|
|
|
85,000
|
|
|
$
|
0.80
|
|
|
1.00
|
|
|
|
185,000
|
|
|
|
3.77
|
|
|
|
1.00
|
|
|
|
157,917
|
|
|
|
1.00
|
|
|
1.11
|
|
|
|
100,000
|
|
|
|
4.25
|
|
|
|
1.11
|
|
|
|
100,000
|
|
|
|
1.11
|
|
|
1.25
|
|
|
|
600,000
|
|
|
|
4.92
|
|
|
|
1.25
|
|
|
|
262,500
|
|
|
|
1.25
|
|
|
2.25
|
|
|
|
162,696
|
|
|
|
1.65
|
|
|
|
2.25
|
|
|
|
162,696
|
|
|
|
2.25
|
|
|
|
|
|
|
1,132,696
|
|
|
|
4.17
|
|
|
$
|
1.31
|
|
|
|
768,113
|
|
|
$
|
1.34
|
|
Transactions involving employee stock options issued are summarized
as follows:
|
|
Number of Shares
|
|
Weighted Average
Price Per Share
|
Outstanding at December 31, 2015
|
|
|
1,597,571
|
|
|
$
|
1.22
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(464,875
|
)
|
|
|
(1.00
|
)
|
Outstanding at September 30, 2016:
|
|
|
1,132,696
|
|
|
$
|
1.31
|
|
The fair value of the vested portion previously
granted employee options of $45,204 and $139,319 was charged during the three and nine months ended September 30, 2016, and $47,057
and $149,591 for the three and nine months ended September 30, 2015, respectively.
Non-employee options
The following table summarizes the changes
in options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees under
a stock option plan at September 30, 2016:
|
Options Outstanding
|
|
|
|
Options Exercisable
|
|
|
Exercise
Prices
|
|
|
|
Number
Outstanding
|
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
Number
Exercisable
|
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
1.00
|
|
|
|
150,000
|
|
|
|
6.45
|
|
|
$
|
1.00
|
|
|
|
131,250
|
|
|
$
|
1.00
|
|
|
1.40
|
|
|
|
105,000
|
|
|
|
2.48
|
|
|
|
1.40
|
|
|
|
105,000
|
|
|
|
1.40
|
|
|
|
|
|
|
255,000
|
|
|
|
4.82
|
|
|
$
|
1.16
|
|
|
|
236,250
|
|
|
$
|
1.18
|
|
Transactions involving non-employee stock options
issued are summarized as follows:
|
|
Number of Shares
|
|
Weighted Average
Price Per Share
|
|
Outstanding at December 31, 2015:
|
|
|
|
360,000
|
|
|
$
|
1.12
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(105,000
|
)
|
|
|
(1.00
|
)
|
|
Outstanding at September 30, 2016:
|
|
|
|
255,000
|
|
|
$
|
1.16
|
|
The fair value (as determined as described
below) of the non-employee options of $1,219 and $4,359 for the three and nine months ended September 30, 2016, and $3,281 and
$11,688 for the three and nine months ended September 30, 2015 was charged to operations, respectively.
The fair value of these options issued and
the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:
Significant assumptions:
|
|
|
|
Risk-free interest rate at grant date
|
|
|
1.30% to 1.54
|
%
|
Expected stock price volatility
|
|
|
321.79% to 408.40
|
%
|
Expected dividend payout
|
|
|
—
|
|
Expected option life-years (a)
|
|
|
6.49 to 6.99
|
|
NOTE 8 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved
in various litigation matters in the ordinary course of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company’s financial position or results of operations.
In 2016 upon settlement, the Company reversed
a prior service obligation of $50,000 as a reduction in current period operating expenses.
NOTE 9 - SUBSEQUENT EVENTS
In November 2016, the Company issued 24,000
shares of Common Stock for legal fees, 416,667 shares of Common Stock for officer compensation, 37,500 shares of Common Stock for
Board fees and 12,000 shares of Common Stock for consulting services. (See Note 6)