NOTE 14. STOCK OPTIONS AND WARRANTS

Stock options. For the years ended December 31, 2017 and 2016, we issued options to purchase 1,465,000 and 540,000 shares of our common stock, respectively, to members of our Board, employees and independent contractors.  The stock options generally have a contractual term of five years. The stock options issued to employees generally require continuous employment through vesting dates, while those issued to members of our Board generally vest immediately on the grant date.

On May 1, 2017, in connection with the Hagerty Employment Agreement, Mr. Hagerty was granted options to purchase 400,000 shares of our Common Stock at an exercise price per share of $0.60, which vest as follows: (i) as to the first 100,000 shares of stock, on May 1, 2017; (ii) as to the next 100,000 shares of stock, on May 1, 2018; (iii) as to the next 100,000 shares of stock, on May 1, 2019; and (iii) as to the next 100,000 shares of stock, on May 1, 2020, all pursuant to the terms of a stock option grant agreement by and between us and Mr. Hagerty.  

On July 26, 2017, in connection with the Cravens Employment Agreement, Mr. Cravens was granted options to purchase up to 450,000 shares of our common stock, which vest as follows: (i) as to the first 150,000 shares of stock, on July 26, 2017, (ii) as to the next 150,000 shares of stock, on August 1, 2018, and (iii) as to the next 150,000 shares of stock, on August 1, 2019, all pursuant to the terms of a stock option grant agreement by and between us and Mr. Cravens.  Provided that Mr. Cravens is a full-time employee on August 1, 2020, we agreed to grant to Mr. Cravens an option to purchase an additional 150,000 shares of our common stock with a strike price equal to the price per share of our common stock as reported on OTC Markets on August 1, 2020 (or the nearest trading date thereafter), which option will vest on August 1, 2020 (or the nearest trading date thereafter).

The fair value of stock options granted in 2017 and 2016 was $710,368 and $141,311, respectively, using the Black-Scholes option pricing model with the following assumptions:

A summary of stock option activity is as follows:

A summary of unvested stock option activity is as follows:

As of December 31, 2017, our unrecognized share-based compensation expense associated with the stock options issued was $262,940, which will be amortized over a weighted-average of 1.90 years.

The cost of all stock options and stock grants (Note 14) issued have been classified as share-based compensation on the statement of operations for the years ended December 31, 2017 and 2016.  Total share-based compensation was $813,480 and $145,732 for the years ended December 31, 2017 and 2016, respectively.

Warrants.  On August 29, 2016, in connection with the Term Loan agreement, we issued the Warrants to purchase 1,965,780 shares of common stock at an initial exercise price of $0.30 per share to the Term Loan lenders. The number of shares of common stock issuable upon exercise of the Warrants, and/or the exercise price of such shares, is subject to standard anti-dilution adjustments in the event of stock splits, reorganizations, stock dividends, and similar events. As of the date of the Warrant Agreement, the shares of common stock issuable upon a full exercise of the Warrants represented 5.0% of the total issued and outstanding shares of our common stock. The lenders were also granted the right, but not the obligation, to purchase up to 5.0% of the total number of new securities that we may, from time to time, sell and issue.

The Warrants expire on August 29, 2022, and may not be exercised prior to the earliest of (a) the fifth anniversary of the Term Loan Agreement, (b) the date on which the obligations described in the Term Loan Agreement are satisfied in full, or (c) the date on which the lenders declare all or any portion of the outstanding amount of the Term Loan to be due and payable under the terms of the Term Loan Agreement (collectively, the "Trigger Date"). Exercise of the Warrants requires a sixty (60) day prior written notice, during which time we may exercise its Call Right described below.

The Warrant Agreement includes a call right (the "Call Right") whereby we can purchase the Warrants for a fixed sum of $1,333,333 upon providing the Warrant holders with a thirty (30) day prior written notice. Furthermore, the Warrant Agreement also includes a put right (the "Put Right") whereby the lenders may require us to purchase from the lenders all or any portion of the Warrants at a purchase price equal to the lesser of (a) the fair market value of the underlying shares of common stock as of the date of exercise of the Put Right, or (b) $1,333,333. The Put Right may not be exercised prior to the Trigger Date (as defined above), and the Put Right expires on August 29, 2022.  The foregoing summary of the Term Loan Agreement and the Warrant Agreement is qualified in its entirety by reference to the respective agreements, which are found as Exhibits 99.1 and 99.2, respectively, to our Form 8-K filed with the SEC on August 29, 2016.

As of December 31, 2017, the Warrants were the only financial instrument measured at estimated fair value on a recurring basis, which was determined using the Black-Scholes pricing model, subject to a ceiling on the maximum amount we will have to pay to repurchase the warrants under certain circumstances. The estimated fair value of the Warrants was determined using Level 2 inputs, as defined ASC 820, since inputs utilized in the Black-Scholes pricing model were based on observable market inputs, but not for identical assets or liabilities.