Annual report pursuant to Section 13 and 15(d)

Stock Options and Warrants

v3.7.0.1
Stock Options and Warrants
12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options and Warrants

Note 8 – Stock Options and Warrants

 

Options

 

During the year ended December 31, 2015, the Company granted options to purchase 970,000 shares of common stock with exercise prices ranging from $0.15 to $0.25 per share to employees of the Company. The stock options generally vest between two and three years. The fair value of these options was determined to be $194,201 using the Black-Scholes-Merton option-pricing model based on the following assumptions: (i) volatility rate ranging from 180% to 207%, (ii) discount rate ranging from 1.5% to 1.71%, (iii) zero expected dividend yield, and (iv) expected life of 5 to 10 years.

 

During the years ended December 31, 2016 and 2015, the Company recorded compensation costs of $38,614 and $84,589, respectively, relating to the vesting of stock options. As of December 31, 2016, the aggregate value of unvested options was $3,303, which will be amortized through June, 2017.

 

The stock option activity for the year ended December 31, 2016 and 2015 is as follows:

 

    Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term  
Balance outstanding, January 1, 2015     360,000     $ 0.38       9.64  
Granted     970,000       0.17       5.99  
Exercised     -       -       -  
Forfeited/expired     (360,000 )     0.28       8.88  
Balance outstanding, December 31, 2015     970,000       0.17       6.71  
Granted     -       -       -  
Exercised     -       -       -  
Forfeited/expired     (70,000 )     0.25       -  
Balance outstanding, December 31, 2016     900,000     $ 0.17       4.67  
Exercisable, December 31, 2016     106,664     $ 0.25       8.13  

 

At December 31, 2016, the Company’s outstanding and exercisable options had no intrinsic value. On January 4, 2017, 750,000 of the options outstanding at December 31, 2016 were cancelled.

 

Warrants

 

During the year ended December 31, 2016, the Company issued warrants exercisable into 19,000,000 shares of common stock. Warrants exercisable into 10,000,000 shares of common stock were issued with 10,000,000 shares of common stock (see Note 7) and warrants exercisable into 1,000,000 shares of common stock were issued to a note holder (see Note 5).

 

In addition, the Company issued warrants for services to purchase 8,000,000 shares of common stock, exercisable at $0.15 per share, with a term of three years, and 100% vested upon issuance. The Company determined that the award is a certainty and the service performance and its future benefit were not assured, and so the fair value of the 8,000,000 warrants calculated to be $330,210 was expensed immediately.

 

During the year ended December 31, 2016, the Company recorded compensation costs of $75,022 relating to the vesting of other stock warrants.

 

During the year ended December 31, 2015, the Company granted warrants to purchase 4,850,000 shares of common stock with exercise prices ranging from $0.15 to $0.25 per share to employees of the Company and consultants. In September 2015, in conjunction with the issuance of shares of the Company’s common stock to accredited investors, the Company issued warrants exercisable into 10,320,000 shares of common stock. The warrants have a term of three years and an exercise price of $0.15 per share. During the year ended December 31, 2015, the Company recorded compensation costs of $349,110 relating to the vesting of other stock warrants

 

For the years ending December 31, 2016 and 2015, the fair value of warrant awards was estimated using the Black-Scholes-Merton option-pricing model with the following assumptions:

 

    December 31, 2016     December 31, 2015  
Expected volatility     121 %     134% to 144 %
Risk-free interest rate     1.08 %     1.2% to 1.5 %
Expected dividend yield     0 %     0 %
Expected life     3 years       3 to 5 years  

 

To estimate the expected volatility, the Company used historical volatility calculated using daily closing prices for its common stock over periods that match the expected term of the warrants. The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the exercise feature of the warrants was based on the remaining term of the warrants. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

 

As of December 31, 2016, the aggregate value of unvested warrants was $10,191, which will be amortized through June, 2017.

 

A summary of the Company’s warrant activity during the year ended December 31, 2016 and 2015 is presented below:

 

    Number of Warrants     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term  
Balance outstanding, January 1, 2015     22,450,140     $ 0.26       4.03  
Granted     15,170,000       0.17       3.07  
Exercised     (600,000 )     0.01       -  
Forfeited/expired     (1,710,000 )     0.75       -  
Balance outstanding, December 31, 2015     35,310,140       0.09       3.21  
Granted     19,000,000       0.12       2.12  
Exercised     (6,956,218 )     0.01       2,65  
Forfeited/expired     (395,850 )     0.09       -  
Balance outstanding, December 31, 2016     46,958,072     $ 0.11       2.13  
Exercisable, December 31, 2016     46,458,072     $ 0.11       4,25  

 

At December 31, 2016, the Company’s outstanding and exercisable warrants had an intrinsic value of $225,897.