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8. STOCKHOLDERS' EQUITY
 3 Months Ended
Mar. 31, 2016
Statement of Stockholders' Equity [Abstract]  
NOTE 8. STOCKHOLDERS' EQUITY

The Company’s board of directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the board of directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock.

 

Convertible Series A Preferred Stock

 

The Company has authorized 1,000,000 shares of Convertible Series A Preferred Stock, $0.01 par value. At March 31, 2016 and December 31, 2015, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock.

 

Convertible Series B Preferred Stock

 

The Company has authorized 4,000 shares of Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend. At March 31, 2016 and December 31, 2015, there were no shares issued and outstanding, respectively.

 

Common Stock

 

During the three months ended March 31, 2015, the Company issued 100,000 shares of common stock valued at approximately $25,000 for professional services rendered.

 

During the three months ended March 31, 2015, the Company issued 20,245 shares of common stock valued at $6,000 to Nick Jennings, CFO, as part of his annual compensation from the Company.

 

During the three months ended March 31, 2015, the Company sold, through its confidential private offering, 1,500,002 equity units.  Each unit consisted of 1 share of common stock and 2.5 warrants.  The warrants have an exercise price of $.29 per share and a term of seven years. Gross proceeds to the Company amounted to $434,826.  In connection with the sale, the Company incurred a [cash finder’s fee in the amount of $43,500 in addition to a finder’s fee to be paid in common stock of 45,000 shares valued at $13,050

 

During the three months ended March 31, 2015, the Company directly sold, 260,000 equity units.  Each unit consisted of 1 share of common stock and 2.5 warrants.  The warrants have an exercise price of $.29 per share and a term of seven years. Gross proceeds to the Company amounted to $75,387.  In connection with the sale, the Company incurred a cash finder’s fee in the amount of $7,500 in addition to a finder’s fee to be paid in common stock of 7,800 shares valued at $2,262

 

During the three months ended March 31, 2016, the Company issued 275,416 shares of common stock valued at approximately $145,000 for professional services rendered.

 

Stock Options

 

The Company issued 40,000 options valued at $10,798 to two directors in January 2015. The options have an exercise price of $0.27 per share. The options expire in January 2025. The options were valued using the Black-Scholes model using the following assumptions: volatility: 237%; dividend yield: 0%; zero coupon rate: 1.61%; and a life of 10 years.

 

The Company issued 100,000 options valued at $54,980 to four directors in February 2016. The options have an exercise price of $0.55 per share. The options expire in February 2026. The options were valued using the Black-Scholes model using the following assumptions: volatility: 224%; dividend yield: 0%; zero coupon rate: 1.47%; and a life of 10 years.

 

The following table summarizes stock options outstanding as of March 31, 2016 and December 31, 2015:

 

    March 31, 2016 (Unaudited)     December 31, 2015  
    Number of Options     Weighted Average Exercise Price     Number of Options     Weighted Average Exercise Price  
Outstanding, beginning of period     100,000     $ 0.96       60,000     $ 1.42  
Granted     100,000       0.55       40,000       0.27  
Exercised     -       -       -       -  
Outstanding, end of period     200,000     $ 0.76       100,000     $ 0.96  

 

Options outstanding and exercisable by price range as of March 31, 2016 were as follows:

 

Outstanding Options    

Average

Weighted

     Exercisable Options  
Range     Number    

Remaining

Contractual

Life in Years

     Number    

Weighted

Average

Exercise Price

  
                                     
$ 2.10       40,000       3.76       40,000     $ 2.10  
$ 0.05       20,000       4.77       20,000     $ 0.05  
$ 0.27       40,000       8.77       40,000     $ 0.27  
$ 0.55       100,000       9.85       100,000     $ 0.55  
          200,000               200,000          

 

Stock Warrants

 

For the three months ended March 31, 2015, the Company recognized equity based compensation of approximately $79,000 on the warrants issued to the CEO in connection with the employment agreement.  In addition, the Company recognized approximately $28,000 to a consultant (Note 11), and $7,400 on the vesting of warrants issued to the CFO on October 1, 2014 (Note 9).

 

During the quarter ended March 31, 2015, the Company issued warrants to purchase up to 4,400,005 shares of common stock in connection with equity units sold to investors.  See note 8 (common stock) for additional details.

 

For the three months ended March 31, 2016, the Company recognized total equity based compensation of approximately $168,000 on warrants issued to the CEO in connection with his current and previous employment agreements (Note 9).  For the three months ended March 31, 2016, the Company recognized $39,000 in stock compensation expense for the warrants issued to the CEO in February 2014 that vested in February 2016.  In addition, on March 31, 2016, the Company issued warrants to purchase up to 250,000 shares of common stock to the CEO with a term of five years that vest upon issuance and have an exercise price of $.50 per share.  The Company utilized the Black-Scholes method to fair value the warrants to purchase up to 250,000 shares of common stock received by the CEO totaling approximately $129,000 with the following assumptions: volatility, 162%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.51.  (See note 9 for additional details)

 

For the three months ended March 31, 2016, the Company recognized total equity based compensation of approximately $58,000 on warrants issued to the CFO in connection with his current and previous employment agreements (Note 9).  For the three months ended March 31, 2016, the Company recognized $7,000 in stock compensation expense for the accrued but not vested portion of the warrants issued to the CFO under his previous agreement with the Company.  In addition, on January 26, 2016, the Company issued warrants to purchase up to 100,000 shares of common stock to the CFO with a term of five years that vest upon issuance and have an exercise price of $.55 per share.  The Company utilized the Black-Scholes method to fair value the warrants to purchase up to 100,000 shares of common stock received by the CFO totaling approximately $51,000 with the following assumptions: volatility, 164%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.51.  (See note 9 for additional details)

 

For the three months ended March 31, 2016, the Company recognized equity compensation expense of approximately $57,000 related to warrants contracted to an employee pursuant to his employment agreement with the Company that were issued in April of 2016.  The Company has accrued for the estimated fair value of the warrants as of March 31, 2016.  The Company utilized the Black-Scholes method to fair value the warrants received by the employee with the following assumptions: volatility, 159%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.46. (See note 12)

 

The following table summarizes the outstanding common stock warrants as of March 31, 2016 and December 31, 2015:

 

    March 31, 2016 (Unaudited)     December 31, 2015  
    Number of Warrants     Weighted Average Exercise Price     Number of Warrants     Weighted Average Exercise Price  
Outstanding, beginning of period     35,676,413     $ 0.30       28,051,408     $ 0.23  
Granted     350,000       0.51       7,625,005       0.58  
Outstanding, end of period     36,026,413     $ 0.31       35,676,413     $ 0.30  

 

Warrants outstanding and exercisable by price range as of March 31, 2016 were as follows: 

 

Outstanding Warrants           Exercisable Warrants  
Range     Number    

Average

Weighted

Remaining

Contractual

Life in Years

     Number    

Weighted

Average

Exercise Price

  
$ 0.01       1,575,000       1.28       1,575,000     $ 0.01  
$ 0.05       975,000       1.37       975,000     $ 0.05  
$ 0.15       7,750,000       1.55       7,750,000     $ 0.15  
$ 0.26       100,000       2.24       100,000     $ 0.26  
$ 0.29       10,125,613       4.56       10,125,613     $ 0.29  
$ 0.30       11,925,800       2.50       11,825,800     $ 0.30  
$ 0.33       75,000       2.50       75,000     $ 0.33  
$ 0.50       325,000       4.32       325,000     $ 0.50  
$ 0.55       100,000       4.83       100,000     $ 0.55  
$ 0.62       75,000       2.30       75,000     $ 0.62  
$ 1.00       3,000,000       4.09       3,000,000     $ 1.00  
          36,026,413               35,926,413          

 

Unvested warrants outstanding as of March 31, 2016 were as follows:

 

Unvested Warrants        

Weighted

Average

Exercise Price

     Number    

Average

Weighted

Remaining

Contractual

Life in Years

  
$ 0.30       100,000       5.00