11. STOCK OPTIONS AND WARRANTS

9 Months Ended

Sep. 30, 2021

Notes

11. STOCK OPTIONS AND WARRANTS

11.  STOCK OPTIONS AND WARRANTS  

Stock Options 

On August 1, 2017, we granted non-qualified stock options to purchase up to 10,000,000 shares of our common stock to a key employee, at an exercise price of $0.01 per share.  The stock options vest equally over a period of 36 months and expire August 1, 2022.  These options may be exercised on a cashless basis, resulting in no cash payment to the company upon exercise. If the optionee exercises the options on a cashless basis, then the above water value (difference between the option price and the fair market price at the time of exercise) is used to purchase shares of common stock. Under this method, the number of shares of common stock issued will be less than the number of options exercised to acquire those shares of common stock.  During the quarter ended September 30, 2018, the employee exercised, on a cashless basis, 3,324,201 options, resulting in the issuance of 1,233,509 shares of common stock. During the quarter ended March 30, 2021, the employee exercised, on a cashless basis, 6,675,799 options, resulting in the issuance of 5,439,540 shares of common stock.  As of September 30, 2021, all stock options issued on August 1, 2017 were fully exercised.

On September 18, 2017, we granted non-qualified stock options to purchase up to 1,800,000 shares of our common stock to three key employees, at an exercise price of $0.05 per share. The stock options vest equally over a period of 36 months and expire September 18, 2022. These options were exercisable on a cashless basis, resulting in no cash payment to the company upon exercise. During the year ended December 31, 2019, two of the employees who held 1,200,000 options, collectively, left the company and the options were forfeited, and during the period ended June 30, 2020, a key employee who held 600,000 options left the Company and the options were forfeited.

On January 3, 2018, we granted non-qualified stock options to purchase up to 20,000,000 shares of our common stock to a key employees, at an exercise price of $0.04 per share. The stock options vest equally over a period of 36 months and expire January 3, 2023. These options were exercisable on a cashless basis, During the year ended December 31, 2020, the key employee left the Company, and the options were forfeited.  

On January 17, 2020, we granted non-qualified stock options to purchase up to 283,000,000 shares of our common stock to ten key employees and three directors, at an exercise price of $0.0019 per share. The stock options vest equally over a period of 36 months and expire January 17, 2025. These options allow the optionee to exercise on a cashless basis, anytime after January 17, 2021.  During the quarter ended March 30, 2021, an employee exercised, on a cashless basis, 100,000 options, resulting in the issuance of 97,625 shares of common stock.  During the quarter ended September 30, 2021, an employee exercised, on a cashless basis, 2,000,000 options, resulting in the issuance of 1,750,688 shares of common stock. During the quarter ended September 30, 2021, a key employee who held 20,000,000 options left the Company, and the options were forfeited.

On June 2, 2020, we granted non-qualified stock options to purchase up to 17,000,000 shares of our common stock to a director, at an exercise price of $0.0018 per share. The stock options vest equally over a period of 36 months and expire June 2, 2025. These options are exercisable on a cashless basis, anytime after June 2, 2021.  

On January 5, 2021, we granted non-qualified stock options to purchase up to 368,000,000 shares of our common stock to six key employees and three directors, at an exercise price of $0.0068 per share. The stock options vest equally over a period of 36 months and expire January 5, 2026. These options are exercisable on a cashless basis, resulting in no cash payment to the Company upon exercise, anytime after January 5, 2022.  During the quarter ended September 30, 2021, a key employee who held 1,000,000 options left the Company, and the options were forfeited.

On August 18, 2021, we granted non-qualified stock options to purchase up to 5,000,000 shares of our common stock to a key employee, at an exercise price of $0.0017 per share.  The stock options vest equally over a period of 36 months and expire August 18, 2026. These options are exercisable on a cashless basis, any time after August 18, 2022.   

The Company used the historical industry index to calculate volatility, since the Company’s stock history did not represent the expected future volatility of the Company’s common stock.  

The fair value of options granted during the nine months ending September 30, 2021 and 2020, were determined using the Black Scholes method with the following assumptions:

	Nine months ended September 30, 2021	Nine months ended September 30, 2020
Risk free interest rate	0.40%	1.86%
Stock volatility factor	337%	272%
Weighted average expected option life	5 years	5 years
Expected dividend yield	0%	0%

A summary of the Company’s stock option activity and related information follows:

	Nine months ended			Nine months ended
	September 30, 2021			September 30, 2020
	Options		Weighted average exercise price	Options		Weighted average exercise price
Outstanding - beginning of period	429,675,799	$	0.0052	150,275,799	$	0.0160
Granted	373,000,000		0.0068	300,000,000		0.0018
Exercised	(12,442,467)		0.0070	-		-
Forfeited	(21,000,000)		0.0021	(600,000)		-
Outstanding - end of period	769,233,332		0.0060	449,675,799		0.0067
Exercisable at the end of period	366,175,798		0.0067	216,242,922		0.0116
Weighted average fair value of options granted during the period		$	2,580,600		$	568,300

As of September 30, 2021, and December 31, 2020, the intrinsic value of the stock options was approximately $7,676,290 and $1,366,650, respectively.  Stock option expense for the nine months ended September 30, 2021, and 2020 were $728,270 and $344,665, respectively. 

The Black Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 

The weighted average remaining contractual life of options outstanding, as of September 30, 2021 was as follows:

		Weighted Average
		remaining
		contractual
Exercise prices	Number of options outstanding	life (years)
0.0150	35,000,000	0.90
0.0131	60,000,000	0.35
0.0130	15,000,000	0.47
0.0068	367,000,000	4.27
0.0053	10,000,000	0.87
0.0019	260,233,332	3.30
0.0018	17,000,000	3.67
0.0170	5,000,000	4.88
	769,233,332

Warrants 

As of September 30, 2021 and December 31, 2020, there were 183,132,441 and 20,912,852 warrants outstanding, respectively.

The fair value of warrants issued during the nine months ended September 30, 2021 and 2020, were determined using the Black Scholes method with the following assumptions:

	Nine months ended September 30, 2021	Nine months ended September 30, 2020
Risk free interest rate	0.40%	-
Stock volatility factor	337%	-
Weighted average expected warrant life	5 years
Expected dividend yield	0%	-

A summary of the Company’s warrant activity and related information follows:

	Nine months ended			Year ended
	September 30, 2021			December 31, 2020
	Warrants		Weighted average exercise price	Warrants		Weighted average exercise price
Outstanding - beginning of period	20,912,852	$	0.007	10,000,000	$	0.007
Issued	240,000,001		0.037	10,912,852		0.007
Exercised	(77,780,412)		0.007	-		-
Forfeited	-		-	-		-
Outstanding - end of period	183,132,441		0.047	20,912,852		0.007
Exercisable at the end of period	183,132,441		0.047	20,912,852		0.007
Weighted average fair value of warrants granted during the period		$	8,720,357		$	98,343

Warrant expense for the nine months ended September 30, 2021, and 2020 were $983,571 and zero, respectively.