NOTE 7 — STOCKHOLDERS’ EQUITY

Preferred stock

As of March 31, 2018 and December 31, 2017, the Company had 110,000 shares of Series A Convertible Preferred Stock, issued at $10 per share, paying a 5% cumulative annual dividend and convertible for common stock at a price of $0.1754 per share. For the three months ended March 31, 2018, preferred shareholders earned, but were not paid $13,750 in annual dividends, or equivalent to 78,392 common shares based on a conversion price of $0.1754 per share. As of March 31, 2018 and December 31, 2017, cumulative and unpaid dividends were $160,668 and $146,918, or equivalent to 916,009 and 837,617 common shares based on a conversion price of $0.1754 per share, respectively.

Common stock

As of March 31, 2018 and December 31, 2017, the Company had 161,664,077 shares of common stock issued and outstanding.

Options

As of March 31, 2018 and December 31, 2017, the Company has outstanding options to purchase 26,454,993 and 25,095,557 shares of common stock, respectively.

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of
	Options		Exercise Price		Term		Exercisable		Options
Outstanding at December 31, 2017		25,095,557	$	.019		2.64		22,276,224	$	1,356,188
Granted		1,509,436		0.26		5.00				-
Forfeited/Expired		(150,000)		0.50
Outstanding at March 31, 2018		26,454,993	$	0.19		2.75		23,082,687	$	2,979,412

On March 9, 2018, the Company granted an aggregate of 1,509,436 options to employees as compensation for services rendered. The options are exercisable at $0.258 per share for five years with (i) 946,936 options vesting 50% at the first day of each month beginning January 1, 2018 through December 1, 2018, 25% vesting at the first day of each month from January 1, 2019 through December 1, 2019 and 25% vesting at the first day of each month beginning January 1, 2020 through December 1, 2020; (ii) 312,500 options vesting 50% on January 1, 2018, 50% vesting at each month beginning on January 1, 2019 for 24 months; and (iii) 250,000 options fully vesting on January 1, 2018. The exercise price was determined using the 10-day average closing price beginning with the closing price on January 9, 2018. The value on the grant date of the options was $298,914.

Option grants during the three months ended March 31, 2018 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 2.50 to 3.50 years, expected volatility of 163.85%, risk free interest rate of 2.45% to 2.65%, and expected dividend yield of 0%.

For the three months ended March 31, 2018 and 2017, total stock compensation expense related to the options totaled $145,046 and $167,414, respectively.

The outstanding unamortized stock compensation expense related to options was $265,865 (which will be recognized through December 2020) as of March 31, 2018.

Warrants

Below is a table summarizing the Company’s outstanding warrants as of March 31, 2018 and December 31, 2017:

							Intrinsic
					Wtd Avg.		Value
	Number of		Wtd Avg.		Remaining		of
	Warrants		Exercise Price		Term		Warrants
Outstanding at December 31, 2016		47,997,335	$	0.20		2.61	$	1,656,083
Granted		-
Exercised		-
Forfeited/Expired		(3,802,672)		0.26
Outstanding at September 30, 2017		44,194,663	$	0.19		2.57	$	4,650,064

For the three months ended March 31, 2018 and 2017, the Company has incurred warrant-based expense of $1,393 and $44,050, respectively. The outstanding unamortized stock compensation expense related to warrants was $0.

Restricted stock units (“RSU”)

The following table summarizes the restricted stock unit activity for the three months ended March 31, 2018:

Restricted stock units issued as of January 1, 2018			3,908,471
Granted			958,333
Total Restricted stock units issued at March 31, 2018			4,866,804
Vested at March 31, 2018			2,376,804
Unvested restricted stock units as of March 31, 2018			2,490,000

On March 27, 2018, the Company granted 958,333 RSUs for services provided. 500,000 of such RSUs began vesting May 1, 2018, and will vest each calendar month at a rate of 41,666 RSUs per month except the last month ending April 1, 2019 whereby 41,674 RSUs would vest provided that services are not terminated by the Company or the grantee. 458,333 RSU’s vested immediately. The settlement date for such RSUs is (i) April 1, 2025 or (ii) the date on which the Company undergoes a change of control during the seven-year term of the award. The fair value of the RSU’s at grant date was $247,250.

For the three months ended March 31, 2018 and 2017, the Company has incurred RSU-based expense of $220,864 and $0, respectively. The outstanding unamortized stock compensation expense related to RSUs was $179,563 (which will be recognized through April 2019) as of March 31, 2018.