The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial
Statements
June 30, 2017 and December 31, 2016
NOTE 1– CONDENSED FINANCIAL STATEMENTS
The accompanying
financial statements of Dthera Sciences (the “Company”) have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows at June 30, 2017, and for all periods presented herein, have been made.
Certain information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December
31, 2016 audited financial statements. The results of operations for the periods ended June 30, 2017 and 2016 are not necessarily
indicative of the operating results for the full years.
NOTE 2 –
GOING CONCERN
The
Company's financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. As of the date of this Report, the Company had an accumulated
deficit of $3,786,721 and no revenues to cover its operating costs, which raises substantial doubt about its ability to continue
as a going concern. As of the date of this Report, the Company had not yet established an ongoing source of revenues sufficient
to cover its operating costs and allow it to continue as a going concern.
The
future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or
financing as may be required to sustain its operations and (2) to achieve adequate revenues from its operations. Management's plan
to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing,
(c) placing revenue producing services into place (d) identifying and executing on additional revenue generating opportunities.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
If the Company is unable to obtain adequate capital, it could be forced to cease operations.
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business
Dthera Sciences (formerly Knowledge Machine
International, Inc.) is a Nevada corporation, and was incorporated on December 27, 2012.
Dthera Sciences is a digital therapeutics
company based in San Diego, California, which is focused on improving the quality of life of patients and their families. The Company's
lead product, ReminX, is an artificial-intelligence-powered digital therapeutic designed to improve the quality of life (QoL) and
reduce anxiety in patients with Alzheimer's disease and other forms of dementia. On September 21, 2016, the Company acquired a
new operating subsidiary, EveryStory, Inc., a Delaware corporation (“EveryStory”). Following the acquisition (referred
to herein as the “EveryStory Transaction”), the Company’s business is to develop a Digital Therapeutic technology
designed to deliver Reminiscence Therapy to certain patient populations, principally patients suffering from Alzheimer’s
disease and dementia with the goal of a Quality of Life benefit and reduction in anxiety in those populations. As of the date of
this Report, Dthera Sciences Operations, Inc., was our only subsidiary. In connection with the EveryStory transaction, the Company
dissolved its other former subsidiary entity and terminated its prior business operations.
Effective July 25, 2017, a reverse stock
split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.001 per share (the “Common
Stock”), at a ratio of 1-for-3 (one share of new common stock for each three shares of old common stock) (the “Reverse
Split”), took effect in the Market, following a filing of a Certificate of Change with the State of Nevada and authorization
from the Financial Industry Regulatory Authority (“FINRA”).
Accounting Basis
The Company’s
financial statements are prepared using the accrual basis of accounting in accordance with U.S. GAAP.
Use of Estimates
The preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements
and the reported amounts of revenue and expenses during the reporting periods. Significant estimates are made in relation to the
allowance for doubtful accounts and the fair value of certain financial instruments.
Principles of Consolidation
The consolidated financial statements include
the accounts of Dthera Sciences and its subsidiaries. All significant inter-Company accounts and transactions have been eliminated.
Fair Value of Financial Instruments
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels
of inputs to measure fair value:
|
Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company's financial
assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain
notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative
liabilities, at fair value, on a recurring basis under level 3.
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt under Accounting Standards Codification (“ASC”) 815, "Derivatives and Hedging"
to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative
at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment
under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration
of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including
stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative
financial instruments, the Company uses the Multinomial Lattice option-pricing model to value the derivative
instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs
and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash
or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying
debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Stock-Based Compensation
The Company accounts for share based payments
in accordance with ASC 718, Compensation - Stock Compensation, which requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award.
In accordance with ASC 718-10-30-9, Measurement Objective – Fair Value at Grant Date, the Company estimates the fair value
of the award using a valuation technique. For this purpose, the Company uses the Black-Scholes option pricing model. The Company
believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such
as volatility and interest rates, and to allow for actual exercise behavior of option holders.
Compensation cost is recognized over the
requisite service period which is generally equal to the vesting period. Upon exercise, shares issued will be newly issued shares
from authorized common stock.
ASC 505, "Compensation-Stock Compensation,"
establishes standards for the accounting for transactions in which an entity exchanges its equity instruments to non-employees
for goods or services. Under this transition method, stock compensation expense includes compensation expense for all stock-based
compensation awards granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions
of ASC 505.
Loss Per Share
Basic loss per
Common Share is computed by dividing losses attributable to Common shareholders by the weighted-average number of shares of Common
Stock outstanding during the period.
Diluted loss per
Common Share is computed by dividing loss attributable to Common shareholders by the weighted-average number of Shares of Common
Stock outstanding during the period increased to include the number of additional Shares of Common Stock that would have been outstanding
if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding convertible Preferred
Stock, stock options, warrants, and convertible debt. The dilutive effect of potentially dilutive securities is reflected in diluted
earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market
value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.
For
the six months ended June 30, 2017 and 2016, all of the Company’s potentially dilutive securities (warrants and options)
were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive
Common Shares that were excluded were 1,369,033 for the six months ended June 30, 2017.
Reclassification
Certain balances in previously issued financial statements have
been reclassified to be consistent with the current period presentation.
Recent Accounting Pronouncements
In March 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09
Compensation
– Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”).
ASU 2016-09 was issued as part of the FASB’s simplification initiative and is intended to improve the accounting for share-based
payment transactions. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. ASU 2016-09 is effective
for annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted in any interim or
annual period provided that the entirety of ASU 2016-09 is adopted. If an entity early adopts ASU 2016-09 in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this
standard did not have a material impact on our consolidated financial statements.
In April 2017,
the FASB issued ASU No. 2016-10 S
ervice Concession Arrangements (Topic 853): Determining the Customer of the Operation Services
(a consensus of the FASB Emerging Issues Task Force)
(“ASU 2016-10”). ASU 2016-10
amends
certain aspects of the FASB’s new revenue standard, ASU 2014-09. ASU 2016-10 identifies performance obligations and provides
licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU No. 2014-09.
The standard will be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim
periods within those periods. The Company is currently assessing the impact that adopting this new accounting guidance will have
on its financial statements and footnote disclosures.
In
May 2016, the FASB issued ASU No. 2016-12,
Revenue from Contracts with Customers
(Topic 606):
Narrow-Scope Improvements
and Practical Expedients
(“ASU 2016-12”). ASU 2016-12 provides for amendments to ASU No. 2014-09, Revenue from
Contracts with Customers, amending the guidance on transition, collectability, noncash consideration and the presentation of sales
and other similar taxes. Specifically, ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all
(or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity
should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if
an arrangement does not meet the standard’s contract criteria. The Company is currently assessing the impact that adopting
this new accounting guidance will have on its financial statements and footnote disclosures.
Management has
considered all other recent accounting pronouncements issued since the last audit of our consolidated financial statements. The
Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated
financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT
The Company’s
property and equipment were comprised of the following as of June 30, 2017, and December 31, 2016:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Computer & Equipment
|
|
$
|
4,676
|
|
|
$
|
2,816
|
|
Assets Used to Fulfill Contract Obligations
|
|
|
48,006
|
|
|
|
–
|
|
Less: Accumulated Depreciation
|
|
|
(2,335
|
)
|
|
|
(1,902
|
)
|
Net Property and Equipment
|
|
$
|
50,347
|
|
|
$
|
914
|
|
Depreciation expense for the six months
ended June 30, 2017 and 2016, was $433 and $473, respectively.
NOTE 5 – INTANGIBLE ASSETS
The Company’s
intangible assets were comprised of the following of June 30, 2017, and December 31, 2016:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Technology asset purchase
|
|
$
|
–
|
|
|
$
|
58,960
|
|
Less: Accumulated Amortization
|
|
|
–
|
|
|
|
–
|
|
Less: Impairment
|
|
|
–
|
|
|
|
(58,960
|
)
|
Net Intangible Assets
|
|
$
|
–
|
|
|
$
|
–
|
|
The Company impaired
intangible assets related to the technology asset purchase and patent purchase due to no revenue production, totaling $0 and $58,960,
for the six months ended June 30, 2017 and 2016, respectively.
NOTE 6 – LOANS PAYABLE
Notes Payable
Notes payable consisted of the following
as of June 30, 2017, and December 31, 2016:
Balance December 31, 2016
|
|
$
|
20,000
|
|
Cash additions
|
|
|
50,000
|
|
Expense additions
|
|
|
–
|
|
Cash payments
|
|
|
(70,000
|
)
|
Conversions
|
|
|
–
|
|
Balance June 30, 2017
|
|
$
|
–
|
|
On
August 3, 2016, the Company entered into a promissory note purchase agreement with an unrelated individual for $20,000. This note
was due on demand. The Company repaid this promissory note on April 13, 2017.
On
February 3, 2017, the Company issued a short-term note to an unrelated party individual for $50,000 due on demand. The note bore
an interest rate of 10% per annum interest within the 90 day period and would increase to 20% interest if not fully paid back within
90 days. On April 9, 2017, the Company repaid the full balance of $50,000.
Convertible Notes Payable
Notes payable due to non-related parties
consisted of the following as of June 30, 2017, and December 31, 2016:
Balance December 31, 2016
|
|
$
|
67,345
|
|
Cash Payments
|
|
|
(240,000
|
)
|
Conversions
|
|
|
–
|
|
Debt discount
|
|
|
172,655
|
|
Balance June 30, 2017
|
|
$
|
–
|
|
Effective September 22, 2016, the Company
conducted a private offering of convertible notes (the “Note Offering”) to raise additional capital that would remain
in the Company following the Closing of the EveryStory Transaction. In the convertible note offering, the Company raised an aggregate
of $240,000, which was to be a component of the post-Closing capitalization of the Company. In the Note Offering, investors entered
into a securities purchase agreement (the “Note SPA”) and were issued a convertible redeemable promissory note (collectively,
the “Convertible Notes”). Pursuant to the terms of the Note SPA, each investor represented and warranted that it was
an accredited investor and that he or she was purchasing the Convertible Notes for his or her own account, and not with a view
to distribution, as well as other standard representations made in private transactions. Also pursuant to the Note SPA, the Company
had the right to put an additional Convertible Note (in the same principal amount as purchased by the applicable investor) beginning
on January 3, 2017, subject to certain conditions. The Convertible Notes bore interest at a rate of 10%, and were to mature on
September 13, 2017, if not converted or prepaid prior to that. The Convertible Notes could convert into shares of the Company's
common stock at a price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock as reported
on the OTC Market platform on which the Company’s shares are quoted or any exchange upon which the Common Stock may be traded
in the future ("Exchange"), on the date of the closing of the EveryStory Transaction. Up to 50% of the Convertible Notes
could be repaid by the Company any time prior to 180 days after the issuance of the Convertible Notes, with a 30% premium to be
paid in connection with the prepayment. As a result of this transaction a debt discount of $240,000 was recorded against the note.
As of June 30, 2017, interest expense of $172,655 was recorded as part of the amortization of the debt discount, leaving a debt
discount balance of $0.
In March 2017, the Company modified
the interest rate on the Convertible Notes to 15% per annum and repaid the Convertible Notes in the original principal amount
of $240,000. In connection with the repayment of the Convertible Notes, the Company repaid a total of $240,000 in principal
and $18,000 in interest, and agreed to issue 83,300 pre-split/27,768 shares of the Company’s common stock to the
holders of the Convertible Notes. The shares of stock were issued pursuant to Section 4(a)(2) of the Securities Act of 1933
and regulations promulgated thereunder. Each of the holders of the Convertible Notes represented to the Company that it was
an accredited investor, that it was acquiring the shares for its own account and for investment purposes, and not with an
intent to distribute.
The Company evaluated amendment under ASC 470-50,
“
Debt - Modification and Extinguishment”
, and concluded that the additional shares issued and increase in
annual interest rate did result in significant and consequential changes to the economic substance of the debt and thus
resulted in loss on extinguishment of the debt of $91,593.
NOTE 7 –DERIVATIVE LIABILITIES
The Company evaluates
its fair value hierarchy disclosures each quarter. The Company has convertible notes with embedded conversion features, which is
accounted for as a derivative liability and measured at fair value on a recurring basis. As of June 30, 2017, this derivative liability
had an estimated fair value of $0.
The following
table presents information about our derivative liability, which was our only financial instrument measured at fair value on a
recurring basis using significant inputs other than level one inputs that are either directly or indirectly observable (Level 2)
as of June 30, 2017:
Balance at December 31, 2016
|
|
$
|
234,502
|
|
Conversion
|
|
|
(91,667
|
)
|
Change in Fair Value of Derivative
|
|
|
(142,835
|
)
|
Balance at June 30, 2017
|
|
$
|
–
|
|
The fair value
of this derivative liability was calculated using the multinomial lattice models that value the derivative liability within the
notes based on a probability weighted discounted cash flow model. These models are based on future projections of the various potential
outcomes. The features in the notes that were analyzed and incorporated into the model included the conversion feature with the
reset provisions; redemption provisions; and the default provisions. Assumptions used to calculate the fair value of the derivative
liability were as follows:
|
|
June 30,
|
|
|
|
2017
|
|
Expected term in years
|
|
|
0.51 years
|
|
Risk-free interest rates
|
|
|
0.89%
|
|
Volatility
|
|
|
48.05%
|
|
Dividend yield
|
|
|
0%
|
|
In addition to
the assumptions above, the Company also takes into consideration whether or not the Company would participate in another round
of financing and if that financing is registered or not and what that stock price would be for the financing at that time. The
Company notes that the notes have matured and is no longer calculating a derivative value for these notes.
NOTE 8 – PREFERRED STOCK
The Company has authorized 1,000,000 shares
of Preferred Stock, of which it has designated 150,000 shares of $0.0001 par value per share Series A Redeemable Preferred Stock
(the “Series A Preferred”). The Series A Preferred has a stated value of $1.00 per share, of which 112,690 and 112,690
shares were issued and outstanding as of June 30, 2017, and December 31, 2016, respectively.
On September 13,
2016, the Company issued the 112,690 shares of Series A Preferred to the CEO and CTO in exchange for amounts owed to them which
included $6,096 of accrued expenses, $95,591 of related party loans, $10,000 of convertible notes payable and $1,003 of accrued
interest on the convertible notes payable. The shares of Series A Preferred are redeemable at any time for cash on a dollar-per-dollar
basis at a redemption price of $1.00 per share. If not redeemed for cash, according to the A&R Agreement the shares of Series
A Preferred can be converted into shares of Common Stock using a post-split conversion price of $0.30 per share pursuant to the
A&R Agreement.
Series A Preferred
The Series A Preferred have the following
rights and preferences:
|
·
|
Redeemable at any time at the option of the holder for cash on a dollar-per-dollar basis at a redemption of $1.00 per share.
|
|
·
|
Convertible into shares of Common Stock using a conversion price of $0.30 per share.
|
|
·
|
No general voting rights until converted into Common Stock.
|
|
·
|
Entitled to receive dividends at a rate per annum of 8%
|
|
·
|
Liquidation preference upon a liquidation event.
|
NOTE 9
– COMMON STOCK
The Company has authorized 200,000,000
pre-split/66,666,667 post-split shares of $0.001 par value per share Common Stock, of which 43,293,151 and 36,181,101 pre-split/14,431,059
and 12,060,367 post-split shares were issued outstanding as of June 30, 2017, and December 31, 2016, respectively.
Six Months Ended June 30, 2017
During
six months ended June 30, 2017, pursuant to a private placement offering (the “Private Offering”) the Company issued
7,028,750 pre-split/2,342,924 post-split shares of common stock for gross proceeds of approximately $1,215,750.
On March 10, 2017,
the Company issued 83,300 pre-split/27,768 post-split shares of the Company’s common stock to the holders of the Convertible
Notes as part of the modification and settlement of the notes, fair-valued at $183,260.
Year Ended December 31, 2016
On June 5, 2016,
EveryStory
issued 88,000 shares of its common stock, which were exchanged for 616,133 pre-split/205,378 post-split shares of Dthera common
stock for the purchase agreement for an SIT Patent for a value of $58,960.
On August 3, 2016,
EveryStory
issued
10,000 shares of its common stock, which exchanged for
70,015 pre-split/23,338 post-split shares of Dthera common stock, for a value of $6,700 of accrued interest.
On September 15, 2016, EveryStory issued
25,000 shares of its common stock, which were exchanged for 175,038 pre-split/58,346 post-split shares of Dthera common stock valued
at $16,750 for services
.
On September 16, 2016, EveryStory issued
37,500 shares of its common stock, which were exchanged for 263,325 pre-split/87,775 post-split shares of Dthera common stock valued
at $25,125 in settlement of $60,000 of accrued consulting fees
. This resulted in a gain on
settlement of $34,875.
On
September 21, 2016, as part of the A&R Agreement, EveryStory issued 625,033 shares of its common stock, which were exchanged
for 4,388,997 shares of Dthera common stock, for the conversion of debt for a value of $730,174.
In connection with
the A&R Agreement, the parties agreed that the prior shareholders of the Company would own an aggregate of 16,000,000 pre-split/5,333,334
post-split shares of the Company’s common stock as part of the agreement totaling $56,354. The reverse stock split is discussed
in more detail in Note 1 above.
From November to December 2016, the Company
issued 314,500 pre-split/104,833 post-split shares of common stock at $0.20 per share for cash proceeds of $62,900, pursuant to
the Private Offering.
NOTE
10 – STOCK PURCHASE OPTIONS
Stock Purchase
Options
During the six
months ended June 30, 2017, the Company did not issue any stock purchase options. As the holders of the Company’s outstanding
options are employees and non-employees, the values attributable to non-employee options are remeasured on a quarterly basis and
amortized over the service period and until they have fully vested over a 3 year vesting period. Stock options issued to employees
are valued on the date of issuance and amortized over the service period until they have fully vested over a 3 year vesting period.
The Company believes that the fair value of the stock options is more reliably measurable than the fair value of the services
received. The fair value of the non-employee stock options granted was revalued at each reporting date using the Black-Scholes
valuation model. As of June 30, 2017, the Company remeasured the options at a value of $4,607,123 to be recognized over the vesting
period, of which $1,051,538 has been recognized.
During the year
ended December 31, 2016, EveryStory issued non-employee options to purchase a total of 106,100 shares of EveryStory common stock,
which would exchange for 742,860 pre-split/247,620 post-split shares of Dthera common stock, which were originally valued at $63,678.
EveryStory issued the options in conjunction with services. The EveryStory options were converted into Dthera options on September
21, 2016, pursuant to the A&R Agreement. As the options holders are non-employees, the values attributable to these options
are remeasured on a quarterly basis and amortized over the service period and until they have fully vested over a 3 year vesting
period. The Company believes that the fair value of the stock options is more reliably measurable than the fair value of the services
received. The fair value of the stock options granted was revalued at each reporting date using the Black-Scholes valuation model.
As of December 31, 2016, the Company remeasured the options at a value of $1,609,669 to be recognized over the vesting period,
of which $199,969 has been recognized.
The following
table summarizes the changes in options outstanding of the Company during the six months ending June 30, 2017:
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price $
|
|
|
Outstanding, December 31, 2016
|
|
|
|
1,382,351
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2017
|
|
|
|
1,382,351
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2017
|
|
|
|
1,134,727
|
|
|
|
0.29
|
|
As of June 30, 2017, the Company had $3,355,616 in unrecognized
expense related to future vesting of stock options.
NOTE
11 – FAIR VALUE MEASUREMENTS
Liabilities
measured at fair value on a recurring basis at June 30, 2017, are summarized as follows:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair value of options
|
|
|
$
|
–
|
|
|
$
|
4,682,580
|
|
|
$
|
–
|
|
|
$
|
4,682,580
|
|
|
Fair value of derivatives
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Liabilities
measured at fair value on a recurring basis at December 31, 2016, are summarized as follows:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair value of options
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,609,699
|
|
|
$
|
1,609,699
|
|
|
Fair value of derivatives
|
|
|
$
|
–
|
|
|
$
|
234,502
|
|
|
$
|
–
|
|
|
$
|
234,502
|
|
Fair value is calculated using the Black-Scholes options pricing
model for options and the Binomial Lattice model for derivative liabilities.
NOTE 12- SUBSEQUENT EVENTS
In accordance with ASC 855, Company’s
management reviewed all material events through the date of this filing and determined that there were the following material subsequent
events to report:
Reverse Stock Split
On July 25, 2017, a reverse stock split
(the “Reverse Split”) of the Company’s authorized and outstanding common stock took effect. The ratio of the
Reverse Split was 1:3, meaning one new share for each three old shares of the Company’s common stock. In lieu of issuing
fractional shares, the Company’s transfer agent was instructed to round up to the nearest whole share.
Following the Reverse Split, the Company
had 66,666,667 shares of common stock authorized, and had 14,431,059 shares of common stock outstanding.
Pursuant to Nevada corporate law, the Reverse
Split was approved by the Board of Directors. Because the Reverse Split applied both to the outstanding shares and to the authorized
shares of common stock of the Company, no shareholder approval was required.
Private Offerings
On July 12, 2017, the Company commenced
two parallel private offerings of its securities. The aggregate amount sought to be raised in the two offerings is $975,000.
Investor Offering
The first private offering is offered
to investors (the “Investor Offering”), in which the Company is selling units (the “Units”)
which consist of four shares of the Company’s common stock and warrants to purchase one additional share of common
stock. The per unit price is $0.04 pre-split/$0.12 post-split, and the exercise price for the warrants is $0.15
pre-split/$0.45 post-split. The warrants cannot be exercised until two years from the purchase date (subject to certain
conditions), and expire four years after the purchase date.
As of August 10, 2017, the Company had
sold an aggregate of 11,061,466 shares of its common stock for $331,841 and issued warrants to purchase an additional 3,227,854
shares in the Investor Offering.
The foregoing summary of the terms and
conditions of the Investor Offering does not purport to be complete, and is qualified in its entirety by reference to the full
text of the Investment Unit Purchase Agreement and the form of warrant, which were filed as exhibits to a Current Report on Form
8-K filed on July 25, 2017.
Employee/Consultant Offering
The second private offering is being offered
to employees and consultants of the Company (the “Employee Offering”), in which the Company is selling shares of its
common stock at a purchase price of $0.03 per share, the same price as in the Investor Offering; however, there are no warrants
in the Employee Offering. The shares sold in the Employee Offering include restrictions on their resale, and the Company reserves
the right to repurchase the shares (the “Repurchase Right”) on terms as agreed between the Company and the employee
or consultant. Per the Employee and Consultant Share Purchase Agreement, the Company’s Repurchase Rights will terminate (subject
to certain conditions) following a term of not less than 5 months or more than 36 months from the purchase date.
As of August 10, 2017, the Company had
sold an aggregate of 0 shares of its common stock for $0 in the Employee Offering.
The foregoing summary of the terms and
conditions of the Employee Offering does not purport to be complete, and is qualified in its entirety by reference to the full
text of the Employee and Consultant Share Purchase Agreement which was filed as an exhibit to a Current Report on Form 8-K filed
on July 25, 2017.
Preferred
Shares
On
August 2, 2017, the Company redeemed 42,690 shares of
Series A Preferred with a stated value of $1.00 per share for $42,690.