Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  



2016 Equity Incentive Plan


In the first quarter of 2016, the Company adopted the 2016 Equity Incentive Plan. The Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 6.7 million shares of the Company’s common stock. The options have an exercise price of $0.09 per share, and vest quarterly over a three-year period.


The following table contains information about the 2016 Equity Incentive Plan as of December 31, 2016:


    Awards Reserved for Issuance   Awards Issued   Awards Available for Grant  
2016 Equity Incentive Plan   30,000,000   6,700,000   23,300,000  


Stock Options


The following table summarizes the Company’s stock option activity and related information for the year ended December 31, 2016:


     Number of Shares    Weighted-Average Exercise Price Per Share    Weighted-Average Remaining Contractual Life    Aggregate Intrinsic Value of In-the-Money Options
Options Outstanding as of January 1, 2016   –      $     –        
Options Granted   6,700,000   $0.09        
Options Exercised     $     –        
Options Forfeited     $     –        
Options Expired     $     –        
Options Outstanding as of December 31, 2016   6,700,000   $0.09   9.0 years   $1,524,250
Options Exercisable as of December 31, 2016   2,233,332   $0.09   9.0 years   $   508,083


The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $0.3175 on December 31, 2016 and the exercise price of options, multiplied by the number of options. As of December 31, 2016, there was $380,710 total unrecognized share-based compensation. Such costs are expected to be recognized over a weighted-average period of approximately 1.8 years.


The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following weighted-average assumptions were used to calculate share based compensation:


Volatility   121.62%
Risk-Free Interest Rate   2.50%
Dividend Yield   0.00%


The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Hence, the Company uses the “simplified method” described in Staff Accounting Bulletin 107 to estimate the expected term of share option grants.


The expected stock price volatility assumption was determined by examining the historical volatilities for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available.


The risk-free interest rate assumption is based on the U.S. treasury instruments whose term was consistent with the expected term of the Company’s stock options.


The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the Company share-based compensation.


The Company estimates the forfeiture rate at the time of grant and revisions, if necessary, were estimated based on management’s expectation through industry knowledge and historical data.


Stock-Based Compensation Expense


For the year ended December 31, 2016, the Company recognized stock-based compensation expense (stock options and restricted grants of common stock to employees, directors and non-employee consultants) in the consolidated statement of operations as follows:


    Year Ended December 31, 2016  
Type of Award   Number of Shares or Options Granted   Stock-Based Compensation Expense  
Stock Options   6,700,000   $ 190,355  
Stock Grants:            
Employees   6,451,702     2,451,220  
Directors   1,070,721     334,424  
Non-Employee Consultants   6,344,563     2,406,061  
Total Stock-Based Compensation Expense       $ 5,382,060  


There was no stock-based compensation expense for the years ended December 31, 2015 and 2014.