Options, Preferred Stock and Warrants

9 Months Ended

Sep. 30, 2017

Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]

Options, Preferred Stock and Warrants

A summary of the Company’s preferred stock as of September 30, 2017 and December 31, 2016 is as follows.

	September 30, 2017 (unaudited)		December 31, 2016
	Shares Issued &		Shares Issued &
Offering	Outstanding		Outstanding
Series A convertible		47,250		47,250
Series B convertible, 10% cumulative dividend		93,750		93,750
Series C convertible, 10% cumulative dividend		38,333		38,333
Series E convertible, 10% cumulative dividend		19,022		19,022
Total Preferred Stock		198,355		198,355

As of September 30, 2017 and December 31, 2016, the Company had cumulative preferred undeclared and unpaid dividends of $1,480,082 and $1,411,946, respectively. In accordance with the relevant accounting guidance, these dividends were added to the net loss in the net loss per share calculation.

Options

The Company’s 2017 Employee/Consultant Common Stock Compensation Plan (the “Plan”) for the issuance of up to 3,000,000 options to grant common stock to the Company’s employees, directors and consultants was adopted pursuant to the written consent of holders of a majority of the Company’s common stock obtained as of March 7, 2017 and was considered approved on April 21, 2017. The Company amended the Plan on August 1, 2017 and was considered approved on September 1, 2017 to include certain technical changes and increased the shares from 3,000,000 to 5,000,000. At September 30, 2017, the Company issued 2.1 million of non-qualified stock options with a term of 10 years, with a strike price above the market on the date of issuance of $0.50, to vest one-third upon issuance, one-third at the beginning of the calendar year of service, or January 1, 2018 and one-third on January 1, 2019, to the Board of Directors valued at $520,307 using the Black Scholes Model. Included in selling, general and administrative in the accompanying condensed consolidated statement of operations and comprehensive loss for the period is $173,436 for the three and nine months ended September 30, 2017, related to the non-qualified options issued to the Board of Directors.

	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2016		-	$	-		—		-
Granted		2,100,000		0.50		—		10.00
Exercised		—		—		—		—
Expired		—		—		—		—
Outstanding at September 30, 2017		2,100,000	$	0.50		—		10.00

Warrants outstanding

	Warrants		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2016		1,396,161	$	1.08		—		4.11
Granted		9,746,123		0.55		—		4.79
Exercised		—		—		—		—
Expired		—		—		—		—
Outstanding at September 30, 2017		11,142,284	$	0.59		—		4.53

During the three and nine month periods ended September 30, 2017, the Company issued 141,667 and 466,666 warrants in connection with the default provisions of the Notes and the May Notes, which were valued at $34,365 and $132,065.  The value of the warrants were determined using the Black-Scholes model, at an interest free rate of 1.33%, volatility of 50% and a remaining term of 5 years and a market price of between $0.50 to $0.80 during the three and nine months ended September 30, 2017.

On September 26, 2017, the Company closed on a loan with GPB discussed in Note 4. The Company issued 4,120,308 warrants with a relative fair value of $520,052 and an initial exercise price of $0.60 per share (the “Exercise Price”). The Exercise Price is subject to a ratchet downside protection with a $0.30 per share floor price in the event the Company issues additional equity securities, and subject to adjustments for stock splits, dividends, combinations, recapitalizations and the like. The Warrants is exercisable for a period of five years (the “Term”) and provides for cashless exercise it at the time of exercise a registration statement registering the underlying securities is not available. The Warrant is not to be exercisable until 6 months after the closing date. In connection with the GPB Note, The Company issued 375,000 warrants to purchase common stock at $0.60 to its broker related to the GPB Note on similar terms as provided to GPB. The estimated fair value of the warrants was $52,421, which was recorded as a debt discount.

On September 27, 2017, the Company closed on subordinated loans, including Notes converted into subordinated loans discussed in Note 4 with similar terms and conditions. The Company issued an aggregate of 440,500 of warrants with a relative fair value of $55,598, with an initial exercise price of $0.60 per share (the “Exercise Price”). The Exercise Price is subject to a ratchet downside protection with a $0.30 per share floor price in the event the Company issues additional equity securities, and subject to adjustments for stock splits, dividends, combinations, recapitalizations and the like. The Company is required to maintain a 6 month interest reserve of $37,938. In connection with the loans, the Company issued 24,375 warrants to purchase common stock at $0.60 to its broker. The estimated fair value of the warrants was $3,407, which was recorded as a debt discount.

In January 2017, the Company reached an agreement with all secured promissory noteholders, to extend the maturity of the secured promissory notes to June 30, 2017, whereby the warrants were repriced from $0.80 a share to $0.50 a share. The notes continue to bear interest at 15% and the secured promissory noteholders continue to receive warrants amounting to 10% of the principal balance, as long as the notes remain outstanding. The Company repriced all warrants issued totaling 1.2 million warrants amounting to a $64,405 incremental value using the Black-Scholes model on January 16, 2017, the date of the amendments at a current market price of $0.36 a share, at an interest free rate of 1.33% and a remaining terms ranging from 4 years to 4 years and 11.5 months.

During the nine months ended September 30, 2017, the Company issued 5,060,000 shares of common stock for $2,530,000, less $186,000 of issuance costs. In connection with the issuance of common stock, the Company issued 2,530,000 warrants to purchase shares of common stock at $0.50, for a term of 5 years. We also issued 50,000 shares from stock subscriptions of $25,000 at December 31, 2016 and issued 25,000 warrants on the same terms and conditions. On January 16, 2017 the Company also amended the original equity raise closed on December 7, 2016 and issued an additional 411,915 warrants to purchase shares of common stock at an exercise price of $0.50, for a term of 5 years. The Company issued 176,625 warrants to purchase common stock to brokers related to the above transaction for 2017.