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Stockholders' Equity
 9 Months Ended
Sep. 30, 2016
Stockholders' Equity [Abstract]  
Stockholders' Equity
5.Stockholders’ Equity

 

On April 1, 2016, the Company entered into two agreements with two consultants to provide services over a nine month period in exchange for 2,300,000 shares of common stock. The Company calculated a fair value of $690,000 based on the market price of the shares on the date of the agreements. During the third quarter of 2016, the Company and the consultants renegotiated the agreements by extending the service requirement to December 31, 2017. For the three and nine months ended September 30, 2016, the Company has recognized expense of $76,667 and $306,667, respectively, in connection with these agreements.

 

On September 1, 2016, the Company issued 200,000 shares of common stock for $46,000. In connection with this issuance the Company issued 100,000 warrants with an exercise price of $0.50 per share. These warrants are fully vested and expire in two years.

 

In August 2016, the Company issued 125,000 shares of common stock pursuant to sale of two promissory notes in the Offering.

 

In September 2016, the Company issued 62,500 shares of common stock pursuant to the sale of one promissory note in the Offering.

 

In the third quarter of 2016, the Company purchased 19,363 shares of outstanding Company common stock through an exchange for a price per share of $0.23 to $0.26. As of the September 30, 2016, these shares being held by the Company valued at cost is $4,720 and are included in treasury stock in the consolidated balance sheet.

 

Service-Based Stock Options

 

In May 2016, the Company issued 175,000 service-based options valued at $40,829 to two consultants at exercise prices of $0.20 per share. The options are fully vested and expire in 10 years.

 

In July 2016, the Company issued 50,000 service-based options valued at $12,398 to a consultant with an exercise price of $0.20 per share. The options are fully vested and expire in 10 years.

 

Accordingly, stock based compensation for the three and nine months ended September 30, 2016 included $12,398 and $53,227, respectively, related to such options.

 

A Summary of the outstanding service-based options are as follows:

 

   Number of
Options		 
 Balance at December 31, 2015  11,025,273 
 Cancelled  (250,000)
 Issued  225,000 
      
 Balance at September 30, 2016  11,000,273 

 

All outstanding options are exercisable and have a cashless exercise provision, and certain options provide for accelerated vesting provisions and modifications, as defined, if the Company is sold or acquired. The intrinsic value of options outstanding and exercisable at September 30, 2016 amounted to $750,294.

 

The significant assumptions used to determine the fair values of options issued, using a Black-Scholes option-pricing model are as follows:

 

 Significant assumptions :   
 Risk-free interest rate at grant date  0.78% - 1.88%
 Expected stock price volatility  222.9% - 248.4%
 Expected dividend payout  — 
 Expected option life-years  2 - 3 
 Weighted average grant date fair value $0.22 - 0.26 
 Forfeiture rate  0%

 

The following is a summary of outstanding service-based options at September 30, 2016:

 

 Exercise Price Number of
Options		  Weighted Average Remaining Contractual Life 
        
 $0.10  1,680,273   2 years 
 $0.20 - $0.25  8,170,000   6 years 
 $0.40  1,150,000   5 years 
 Total  11,000,273     

 

Performance-Based Stock Options

 

The Company had granted performance-based options to purchase 4,400,000 shares of common stock at exercise prices of $0.40 to $0.80. The options expire at various dates between 2021 and 2026 and are exercisable upon the Company achieving annual sales revenue of $5,000,000 and $10,000,000. The fair value of these performance-based options aggregated $169,035 to be expensed over the implicit service period commencing once management believes the performance criteria will be met.

 

Management believes the performance criteria for options exercisable upon the Company achieving annual sales revenue of $5,000,000, with a fair value amounting to $133,324, will be met during the year ended December 31, 2016. Accordingly, stock based compensation expense for the three and nine months ended September 30, 2016 includes $55,591 and $133,324, respectively, related to such options. At September 30, 2016, the unearned compensation for all the performance based options is $35,711.

 

Stock based compensation expense amounted to $165,241 and $10,500 for the three month periods ended September 30, 2016 and 2015, respectively. Stock based compensation expense amounted to $513,804 and $14,500 for the nine month periods ended September 30, 2016 and 2015, respectively. Such amounts are included in compensation and related expenses in the accompanying statement of operations.

 

Warrants

 

In September 2016, the Company issued 100,000 warrants with an exercise price of $0.50 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

 

In September 2016, the Company issued 100,000 warrants with exercise prices between $0.20 and $0.50 per share, for consulting services. These warrants are fully vested and expire in three years. The fair value of these warrants are $20,585 and is included in compensation and related expenses in the accompanying statement of operations.

 

Warrants outstanding and exercisable amounted to 1,950,000 and 1,750,000 at September 30, 2016 and December 31, 2015, respectively. The weighted average exercise price of warrants outstanding at September 30, 2016 is $0.19. The warrants expire during November 2016 and September 2019.