12.

EMPLOYEE STOCK OPTIONS

For the year ended December 31, 2017

On January 9, 2017, the Company issued an option to purchase 100,000 shares of common stock with an exercise price of $2.90 per share to a director. The option vests 50,000 after one year from grant date and another 50,000 two years from grant date with an expiration date of four years from grant date provided that the Director is still providing service to the Company. During the twelve months ended December 31, 2017, $129,059 compensation expense was recognized on these 100,000 options.

On August 3, 2017, upon approval of the Company’s board of directors, the Company issued outside its 2015 Equity Plan, 5,210,000 options to purchase the Company’s common stock to officers, directors and employees for services provided. Jay Nussbaum was issued 2,000,000 options, Felicia Hess was issued 1,200,000 options, Dan Erdberg was issued 1,140,000 options, Kendall Carpenter was issued 275,000 options, Directors David Aguilar, Mike Haas and General Wayne Jackson were issued 100,000, 10,000 and 10,000 options, respectively. The remaining 475,000 options were issued to employees and consultants. These stock options immediately vested, are exercisable at an exercise price of $1.00 per share and expire on August 3, 2021. During the twelve months ended December 31, 2017, $3,354,097 compensation expense was recognized on these 5,210,000 options.

On November 9, 2017, upon approval of the Company’s board of directors, the Company issued outside its 2015 Equity Plan, 2,000,000 options to purchase the Company’s common stock to officers, directors, and for services provided. Jay Nussbaum was issued 900,000 options, Felicia Hess was issued 300,000 options, Dan Erdberg was issued 200,000 options, Kendall Carpenter was issued 170,000 options, Directors David Aguilar, Mike Haas and General Wayne Jackson were issued 10,000, 10,000 and 10,000 options, respectively. Reginald Brown, Jr. was issued 400,000 options. These stock options immediately vested, are exercisable at an exercise price of $1.35 per share and expire on November 9, 2021. During the twelve months ended December 31, 2017, $1,846,075 compensation expense was recognized on these 2,000,000 options

On December 13, 2017, upon approval of the Company’s board of directors the Company issued outside its 2015 Equity Plan, 100,000 options each to two newly-appointed directors, or a total of 200,000 options. These options vest 50% after one year and the remaining 50% after two years provided the director is still actively involved with the Company. The options are exercisable at an exercise price of $1.00 per share and expire on December 13, 2021. During the twelve months ended December 31, 2017, $3,593 compensation expense was recognized on these 200,000 options with a remaining balance of $96,196 to be recognized over the vesting period.

One June 1, 2015, the Company issued an option award to an employee for 37,500 shares vesting over three years with an exercise price of $10.80 and expiration date of May 4, 2019. During the twelve months ended December 31, 2017 and 2016, $54,943 and $122,058 compensation expense was recognized on these 37,500 options, respectively.

The Company used the Black-Scholes option pricing model to estimate the fair value on the date of grant of the 7,510,000 options granted during the twelve months ended December 31, 2017.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during 2017 and 2016:

	2017			2016
Expected dividend yield		0	%		0	%
Expected volatility		82-100	%		102-108	%
Risk-free interest rate		1.50-2.01	%		0.79 – 1.38	%
Expected life of options		2.5-4.0 years			2.0 – 3.0 years

Under the Black-Scholes option pricing model, the fair value of the 7,510,000 options granted during the twelve months ended December 31, 2017 is estimated at $5,474,133 on the date of grant. During the twelve months ended December 31, 2017, $5,332,824 compensation expense was recognized on these 7,510,000 options.

During 2017, the Company cancelled 2,500 options issued December 10, 2015 with a strike price of $5.00 and cancelled 5,000 options issued July 28, 2016 with a strike price of $3.77 that had been issued to two employees who left the Company without exercising their options.

The following table represents stock option activity as of and for the period ended December 31, 2017:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2015		392,500		$	6.19		2.62	$	0.00
Exercisable – December 31, 2015		355,000		$	5.70		2.55	$	0.00
Granted		65,000		$	2.99
Exercised or Vested		-		$	0.00
Cancelled or Expired		(15,000	)	$	3.61
Outstanding – December 31, 2016		442,500		$	5.81		1.72
Exercisable – December 31, 2016		407,500		$	5.57		1.65	$	0.00
Granted		7,510,000		$	1.12
Cancelled or Expired		(7,500	)	$	4.18
Outstanding – December 31, 2017		7,945,000		$	1.38		3.50
Exercisable – December 31, 2017		7,627,500		$	1.35		3.50	$	0.00

For the year ended December 31, 2016

During 2016, the Company granted 65,000 common stock options to employees for service provided. Of these, 50,000 options were granted to two employees and were immediately vested with an exercise price of $2.91 and the expiration date is April 27, 2019. One of these employees terminated and did not exercise her 10,000 options resulting in the expiration of the option. Another 5,000 options were immediately vested and were granted with an exercise price of $3.77 and the expiration date is July 29, 2019. Another employee received 10,000 options with two-year vesting and an exercise price of $3.00 and an expiration date of December 6, 2019. The Company recognized $10,516 expense in 2017 relative to that option. Two employees who received 2,500 options each in December 2015 terminated their employment and did not exercise their options resulting in the expiration of a total of 5,000 options. During 2016, $229,563 compensation expense was recognized.