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7. STOCKHOLDERS' EQUITY
 3 Months Ended
Mar. 31, 2017
Statement of Stockholders' Equity [Abstract]  
NOTE 7. STOCKHOLDERS' EQUITY

Our board of directors may, without further action by our shareholders, 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

 

Our authorized Convertible Series A Preferred Stock, $0.01 par value, consists of 1,000,000 shares. At March 31, 2017 and December 31, 2016, 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

 

Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend, consists of 4,000 shares. At March 31, 2017 and December 31, 2016, there were no shares issued and outstanding, respectively.

 

Common Stock

 

During the three months ended March 31, 2017, we did not issue any shares of common stock. During the three months ended March 31, 2016, we issued 275,416 shares of common stock valued at approximately $145,000 for professional services rendered.

 

Stock Options

 

In February 2016, we issued options to purchase 100,000 shares of common stock to four directors, valued at $54,980 in total. 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, 2017 and December 31, 2016:

 

    March 31, 2017 (Unaudited)     December 31, 2016  
     Number of Options      Weighted Average Exercise Price      Number of Options      Weighted Average Exercise Price  
Outstanding, beginning of period     200,000     $ 0.76       100,000     $ 0.96  
Granted     —       —       100,000       0.55  
Exercised     —       —       —       —  
Outstanding, end of period     200,000     $ 0.76       200,000     $ 0.76  

 

Options outstanding and exercisable by price range as of March 31, 2017 were as follows:

 

    Outstanding Options               Exercisable Options  
  Range         Number       Average Weighted Remaining Contractual Life in Years       Number       Weighted Average Exercise Price  
                                       
$ 2.10         40,000       2.76       40,000     $ 2.10  
$ 0.05         20,000       3.77       20,000     $ 0.05  
$ 0.27         40,000       7.76       40,000     $ 0.27  
$ 0.55         100,000       8.85       100,000     $ 0.55  
            200,000       6.91       200,000     $ 0.76  

 

Stock Warrants

 

For the three months ended March 31, 2016, we recognized total equity based compensation of approximately $168,000 on warrants issued to the Chief Executive Officer (“CEO”) in connection with his current and previous employment agreements. For the three months ended March 31, 2016, we 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, we 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 $0.50 per share. We 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.

 

For the three months ended March 31, 2016, we recognized total equity based compensation of approximately $58,000 on warrants issued to the Chief Financial Officer (“CFO”) in connection with his current and previous employment agreements. For the three months ended March 31, 2016, we recognized $7,000 in stock compensation expense for the accrued but unvested portion of the warrants issued to the CFO under his previous agreement with the Company. In addition, on January 26, 2016, we issued warrants to purchase up to 100,000 shares of common stock to the CFO with a term of five years that vested upon issuance and have an exercise price of $0.55 per share. We 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.

 

For the three months ended March 31, 2016, we recognized equity compensation expense of approximately $57,000 related to warrants issued in April 2016 to an employee pursuant to his employment agreement with the Company. We accrued for the estimated fair value of the warrants as of March 31, 2016. We 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.

 

For the three months ended March 31, 2017, we recognized approximately $12,000 in equity compensation expense for the accrued but unvested portion of the warrants issued to an employee pursuant to his agreement with the Company.

 

In March 2017, in connection with the issuance of the Notes, we issued three-year warrants to purchase up to an aggregate of 883,332 shares of common stock at an exercise price of $0.69 per share (see Note 6).

 

The following table summarizes the outstanding common stock warrants as of March 31, 2017 and December 31, 2016:

  

          March 31, 2017 (Unaudited)            December 31, 2016  
     Number of Warrants      Weighted Average Exercise Price      Number of Warrants      Weighted Average Exercise Price  
Outstanding, beginning of period     36,701,413     $ 0.31       35,676,413     $ 0.30  
Granted     883,332       0.69       1,400,000       0.42  
Expired     —       —       (375,000 )     0.05  
Outstanding, end of period     37,584,745     $ 0.32       36,701,413     $ 0.31  

 

                  Warrants outstanding and exercisable by price range as of March 31, 2017 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       0.28       1,575,000     $ 0.01  
  $ 0.05       600,000       0.75       600,000     $ 0.05  
  $ 0.15       7,750,000       0.55       7,750,000     $ 0.15  
  $ 0.26       100,000       1.24       100,000     $ 0.26  
  $ 0.27       250,000       4.75       250,000     $ 0.27  
  $ 0.29       10,125,613       3.56       10,125,613     $ 0.29  
  $ 0.30       11,925,800       1.50       11,925,800     $ 0.30  
  $ 0.32       250,000       4.50       250,000     $ 0.32  
  $ 0.33       75,000       1.50       75,000     $ 0.33  
  $ 0.42       250,000       4.25       250,000     $ 0.42  
  $ 0.50       625,000       3.68       425,000     $ 0.50  
  $ 0.55       100,000       3.83       100,000     $ 0.55  
  $ 0.62       75,000       1.30       75,000     $ 0.62  
  $ 0.69       883,332       2.96       883,332     $ 0.69  
  $ 1.00       3,000,000       3.09       3,000,000     $ 1.00  
            37,584,745       2.17       37,384,745     $ 0.32  

 

Unvested warrants outstanding as of March 31, 2017 were as follows:

 

   Unvested Warrants        
 

Weighted

Average

Exercise Price

     Number    

Average

Weighted

Remaining

Contractual

Life in Years

  
  $ 0.50       200,000       5.00