WARRANTS AND STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 2017

Stock Options And Warrants

WARRANTS AND STOCK BASED COMPENSATION

Warrants

 On July 26, 2017, the Company commenced an offering of Senior Secured Promissory Notes (the “Secured Notes”) in the aggregate principal amount of up to $1.5 million to certain accredited investors (the “Secured Note Financing”). As additional consideration for participating in the Secured Note Financing, investors received five-year warrants, exercisable for $0.15 per share, to purchase that number of shares of the Company’s Common Stock equal to 50% of the principal amount of the Secured Note purchased, divided by $0.15 per share. Between July 26, 2017 and September 30, 2017, the Company offered and sold Secured Notes in the aggregate principal amount of $1,350,000 and issued Warrants to purchase up to 4,500,001 shares of Common Stock to participating investors.

A summary of the Company’s warrant activity for the three and nine months ended September 30, 2017 is presented below:

	Warrants Outstanding			Weighted Average Exercise Price
Outstanding, December 31, 2016		101,396,416		$	0.16
Granted		50,000,010			0.15
Exercised		-			-
Expired		-			-
Exchanged		(146,212,905	)		0.15
Outstanding, March 31, 2017		5,183,521		$	0.20
Granted		3,000,002			0.15
Exercised		-			-
Expired		-			-
Exchanged		(3,000,002	)		0.15
Outstanding, June 30, 2017		5,183,521		$	0.20
Granted		11,733,340			0.15
Exercised		-			-
Expired		-			-
Exchanged		(7,267,333	)		0.15
Outstanding, September 30, 2017		9,649,528		$	0.18

As of September 30, 2017, the Company had the following outstanding warrants to purchase shares of its Common Stock:

Warrants Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (Yrs.)
	7,747,459	$	0.15		3.30
	427,633	$	0.19		2.97
	737,218	$	0.25		0.44
	737,218	$	0.38		0.44
	9,649,528	$	0.18		2.85

 Stock-Based Compensation

Non-Qualified Stock Options

During the quarter ended September 30, 2017, the Company granted options to certain employees and each member of the Company’s Board of Directors to purchase an aggregate total of 39,390,782 shares of Common Stock. Each option granted during the quarter ended September 30, 2017 has an exercise price of $0.07 per share, and expires five years from the date of issuance. As further described below, certain of these options were issued in exchange for the cancellation of previously issued restricted stock awards to our Chief Marketing Officer, Chief Financial Officer and Chief Operating Officer.

During the three and nine months ended September 30, 2017 and 2016, the Company granted stock options to purchase an aggregate of 31,390,782 and 3,460,000 shares of Common Stock, respectively. The weighted average estimated fair value per share of the stock options at grant date was $0.03 per share. Such fair values were estimated using the Black-Scholes stock option pricing model and the following weighted average assumptions.

	2017
Expected life	30 months
Estimated volatility		75	%
Risk-free interest rate		1.1	%
Dividends		-

Stock option activity during the nine months ended September 30, 2017 is summarized as follows:

	Options Outstanding			Weighted Average Exercise Price
Options outstanding at December 31, 2016		3,460,000		$	0.15
Exercised		-			-
Granted		41,390,782			0.07
Forfeited		(1,220,000	)		0.15
Expired		-			-
Options outstanding at September 30, 2017		43,630,782		$	0.08

Restricted Stock Awards

During the quarter ended September 30, 2017, our Chief Marketing Officer, Chief Financial Officer and Chief Operating Officer cancelled 10,720,252 previously issued restricted stock awards in exchange for stock options to purchase an aggregate total of 10,720,252 shares of Common Stock. In addition, the Company issued a total of 1,302,084 shares of restricted stock to James Greco, our Chief Executive Officer, pursuant to the employment agreement entered into by the Company and Mr. Greco in April 2017, and an aggregate total of 2,289,156 shares of restricted stock to our directors as payment of accrued but unpaid board fees.

During the three and nine months ended September 30, 2017, the Company granted an aggregate total of 3,591,240 restricted stock awards to under the Company’s 2013 Stock Incentive Plan, as amended. The Company did not grant any restricted stock awards during the three and nine months ended September 30, 2016. A summary of the Company’s restricted Common Stock activity during the nine months ended September 30, 2017 is summarized as follows:

	Restricted Common Stock Awards
Outstanding, December 31, 2016		12,772,229
Granted		3,591,240
Issued		(2,289,156	)
Forfeited		(10,720,252	)
Outstanding, September 30, 2017		3,354,061