6. Stock Compensation

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Compensation

Common stock issued for services

During the nine months ended September 30, 2017, the Company issued a total of 15,940,227 shares of common stock for services valued at $442,865, including 5,000,000 shares of common stock issued to the Company’s CEO as part of an employment agreement, 3,000,000 shares of common stock issued to a consultant, and 7,940,227 shares of common stock issued to employees. The fair value of the shares was based on the closing price of the Company’s common stock on the date the shares were granted, which ranged from $0.022 per share to $0.0355 per share. For the three and nine months ended September 30, 2017, total fair value of shares granted of $0 and $442,685, respectively, is included in general and administrative expense. During the nine months ended September 30, 2016, the Company did not issue any shares of common stock for services.

Options

On February 14, 2017, the Company granted options to purchase 5,000,000 shares of common stock with an exercise price of $0.05 to the Company’s CEO as part of an employment agreement. Options exercisable into 1,000,000 shares of common stock vested immediately and the options exercisable into 4,000,000 shares of common stock will vest monthly over 48 months beginning on February 14, 2018. The fair value of these options was determined to be $160,416.

On May 8, 2017, the Company granted options to purchase 450,000 shares of common stock with an exercise price of $0.05 to the Company’s employees. The options vested immediately. The fair value of these options was determined to be $18,861.

On August 8, 2017, the Company granted options to purchase 5,000,000 shares of common stock with an exercise price of $0.05 to the Company’s President as part of an employment agreement. Options exercisable into 1,500,000 shares of common stock vested immediately and the options exercisable into 3,500,000 shares of common stock will vest in 48 equal monthly installments thereafter.

The Company used the Black-Scholes-Merton option-pricing models with the following assumptions to calculate fair value :

	February 14, 2017		May 8, 2017		August 8, 2017
Expected volatility		173%		194%		180%
Risk-free interest rate		2.47%		2.39%		2.29%
Expected dividend yield		0%		0%		0%
Expected life		10 years		10 years		10 years

The expected volatility is based on historical volatility of the Company’s stock. The expected life of the options was based on the term of the options. The risk-free interest rate was based on rates established by the Federal Reserve Bank. 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. For the nine months ending September 30, 2016, the Company had no stock options requiring an assessment of value.

During the three months ended September 30, 2017 and 2016, the Company recorded compensation costs of $88,166 and $11,894, respectively, relating to the vesting of stock options. During the nine months ended September 30, 2017 and 2016, the Company recorded compensation costs of $154,360 and $35,777, respectively, relating to the vesting of stock options. As of September 30, 2017, the aggregate value of unvested options was $252,276, which will continue to be amortized as compensation cost as the options vest over terms ranging from one to four years, as applicable.

The stock option activity for the nine months ended September 30, 2017 is as follows:

	Number of  Options			Weighted  Average  Exercise Price		Weighted  Average  Remaining  Contractual  Term
Balance outstanding, December 31, 2016		900,000		$	0.17		4.67
Granted		10,450,000			0.05		9.62
Exercised		–			–		–
Forfeited/expired		(750,000	)		0.15		–
Balance outstanding, September 30, 2017		10,600,000		$	0.05		9.60
Exercisable, September 30, 2017		3,756,248		$	0.06		9.53

At September 30, 2017, the Company’s outstanding and exercisable options had no intrinsic value.

Warrants

On February 14, 2017, pursuant to the employment agreement with the Company CEO, warrants exercisable into 3,000,000 shares of common stock issued to the Company’s CEO in 2015 were deemed fully vested and the exercise price of the warrants was reduced from $0.25 per share to $0.05 per share. The Company determined the expense related to this modification was $13,023 and is included in general and administrative expense.

On January 20, 2017, the Company issued warrants exercisable into 350,000 shares of common stock for services. The fair value of warrants issued for services was determined to be $9,378. The Company recorded the full $9,378 in general and administrative expense since it determined that the award is a certainty and the service performance and its future benefit are not assured in this arrangement.

For the nine months ending September 30, 2017 and 2016, the fair value of warrant awards was estimated using the Black-Scholes-Merton option-pricing model with the following assumptions:

	September 30, 2017		September 30, 2016
Expected volatility		171%		121%
Risk-free interest rate		1.5%		1.08%
Expected dividend yield		0%		0%
Expected life		2.5 years		3 years

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.

During the three months ended September 30, 2017 and 2016, the Company recorded compensation costs of $0 and $14,381, respectively, relating to the vesting of stock warrants. During the nine months ended September 30, 2017 and 2016, the Company recorded compensation costs of $19,569 and $90,769, respectively, relating to the vesting of stock warrants. As of September 30, 2017, the aggregate value of unvested warrants was $0.

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

	Number of  Warrants			Weighted  Average  Exercise Price		Weighted  Average  Remaining  Contractual  Term
Balance outstanding, December 31, 2016		46,958,072		$	0.11		2.13
Granted		350,000			0.01		2.31
Exercised		(1,850,000	)		0.01		2.04
Forfeited/expired		(1,388,251	)		0.09		–
Balance outstanding, September 30, 2017		44,069,821			0.10		1.43
Exercisable, September 30, 2017		44,069,821		$	0.10		1.43

At September 30, 2017, the Company’s outstanding warrants had an intrinsic value of $348,480.