Common Stock

The Company’s common stock activity for the nine months ended September 30, 2016 is as follows:

Stock Repurchases – On January 28, 2016, the Company entered into stock repurchase agreements (the “Repurchase Agreements”) with three former employees and consultants to acquire an aggregate total of 9,011,324 shares of the Company’s common stock. Pursuant to the terms of the agreements, the Company had the right to purchase the shares at a price of $0.02 per share on or before April 15, 2016. In accordance with the terms of the Repurchase Agreements, the Company repurchased 8,311,324 shares for total of $166,226 during the six months and three months ended September 30, 2016.

Shares Issued to Vendors – The Company issued common shares to vendors for services rendered and are expensed based on fair market value of the stock price at the date of grant. For the nine months ended September 30, 2016, the Company issued 3,811,667 number of shares to vendors and recorded stock compensation expense of $475,608. For the three months ended September 30, 2016, the Company issued 1,411,667 number of shares to vendors and recorded stock compensation expense of $217,403.

Shares Issued to Board of Directors – The Company issued common shares to board of directors for services rendered and are expensed based on fair market value of the stock price at the date of grant. For the nine months ended September 30, 2016, the Company issued 1,150,000 number of shares to board of directors and recorded stock compensation expense of $321,682. For the three months ended September 30, 2016, the Company issued 750,000 number of shares to board of directors and recorded stock compensation expense of $97,500.

Shares Issued from Stock Subscription – The Company issued stock subscription to investors. For the nine months ended September 30, 2016, the Company issued 32,135,556 common shares for a net proceed of $1,464,850. For the three months ended September 30, 2016, the Company issued 11,713,334 common shares for a net proceed of $545,850.

Stock Options

Effective October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of the board of directors to retain the services of valued key employees and consultants of the Company.

At its discretion, the Company grants share option awards to certain employees and non-employees, as defined by ASC 718, Compensation—Stock Compensation, under the 204 Stock Option Plan (the “Plan”) and accounts for its share-based compensation in accordance with ASC 718.

The fair value of each share option award on the date of grant is estimated using the Black-Scholes method based on the following weighted-average assumptions:

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the share option award; the expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock and peers; and the expected dividend yield is based upon the Company’s current dividend rate and future expectations

A summary of option activity for the nine months ended September 30, 2016 is presented below.

The Company recognized $115,874 and $347,763 in share-based compensation expense for the three and nine months ended September 30, 2016, respectively, compared to $ 476,732 and $ 729,773 in share-based compensation expense for the three and nine months ended September 30, 2015, respectively. As of September 30, 2016, total unrecognized stock-based compensation expense was $1,261,402, which is expected to be recognized as an operating expense through November 2018.

Warrants

The Company has the following warrants as of September 30, 2016:

On November 12, 2014, the Company granted warrants to a consultant to purchase 600,000 shares of common stock at an exercise price of $0.50 per share. The warrants expire on November 12, 2019 and were fully vested on the grant date.

On March 21, 2015, in connection with the DelMorgan agreement, the Company issued 48,000 warrants, each exercisable into one share of common stock at an exercise price of $0.10 per share. The warrants were fully vested on the date of the grant and expire on March 20, 2018. The warrants have been valued using the Black-Scholes pricing model as of the contract date. The total value of $20,114 has been recorded as a component of prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet and is being amortized over the life of the agreement.

On October 30, 2015, the Company granted warrants to a consultant to purchase 600,000 shares of common stock at an exercise price of $0.50 per share. The warrants expire on October 30, 2020 and were fully vested on the grant date.

On December 1, 2015, the Company granted 9,719,879 warrants as consideration for the Company’s Chief Executive Officer and a member of the Board of Directors for agreeing to extend the payment terms of his note payable balances to a maturity date of April 1, 2017. The warrants have exercise price of $0.07 per share.

On April 4, 2016, the Company issued a secured convertible note to the Chief Executive Officer (“CEO”) and member of the Board of Directors, in the amount of $343,326, which represents additional sums that the CEO advanced to the Company during the period from December 2015 through March 2016, and is addition to all pre-existing loans made by, and notes held by the CEO. This note bears interest at the rate of 12% per annum, compounded annually. In consideration for this agreement to extend the repayment date to August 4, 2017, the Company granted to the CEO the right to convert up to 30% of the amount of the such note into shares of the Company’s common stock at $0.07 per share and issued 2,452,325 share purchase warrants, exercisable at $0.07 per share until April 4, 2019, which warrants represent 50% of the amount of such note.

On April 4, 2016, the Company issued an unsecured convertible note payable to Oceanside Strategies, Inc. (“Oceanside”) in the amount of $680,268. This note supersedes and replaces all previous notes and current liabilities due to Oceanside for sums Oceanside loaned to the Company in 2014 and 2015. This note bears interest at the rate of 12% per annum, compounded annually. In consideration for Oceanside’s agreement to convert the prior notes from current demand notes and extend the maturity date to December 4, 2016, we granted Oceanside the right to convert up to 30% of the amount of such note into shares of the Company’s common stock at $0.07 per share and issued 2,429,530 share purchase warrants, exercisable at $0.07 per share until April 4, 2019