EQUITY INSTRUMENTS

12 Months Ended

Dec. 31, 2014

Equity [Abstract]

EQUITY INSTRUMENTS

Note 10 EQUITY INSTRUMENTS

Our Series C preferred stock is currently convertible into common stock at the rate of 316.28 common shares for each share of Series C preferred, adjustable for any dilutive issuances of common occurring in the future. Series C preferred shares vote with the common stockholders on an as-converted basis. The shares are nonparticipating except that dividends, when declared by our Board of Directors on the common stock, must be paid on the Series C stock on an as-converted basis before any dividends are paid on our common stock. The Series C is also cumulative with respect to dividends on common stock and junior series of preferred stock. Other significant rights and preferences of the Series C preferred include:

● the right to vote as a separate class to appoint five directors of the Company, and

● liquidation preferences, whereby the Series C holders have a claim against our assets senior to the claim of the holders of our common stock in the event of our liquidation, dissolution or winding-up (the value of the liquidation preference is $250 per share, or approximately $2,608,500 million at December 31, 2014 and 2013).

We also have a class of convertible preferred stock, Series D, for which 7,000 shares are authorized and 250 shares were issued during the year ended December 31, 2014. The shares, which were granted in January 2012, do not vest until the tenth anniversary of the grant date. Such shares were issued in exchange for the cancelation of 120 previously granted warrants to purchase Series D shares. Once vested, a Series D preferred share will be convertible at any time into 100,000 shares of common stock, subject to adjustment in the event of any common stock dividend, split, combination thereof or other similar recapitalization, without additional consideration. Prior to vesting and thereafter, each Series D convertible preferred share is entitled to all voting, dividend, liquidation and other rights accorded a share of Series D convertible preferred stock. As to dividends, the Series D stock is noncumulative. If a dividend is declared on the common stock, each share of Series D stock is entitled to receive a dividend equal to 50% of the dividend declared for the common stock as if the Series D stock had been converted. Despite their nonvested status, voting rights of each share nevertheless consist of the right to cast the number of votes equal to those of 500,000 shares of common stock. Unless otherwise required by applicable law, holders of shares of Series D have the right to vote together with holders of common stock as a single class on all matters submitted to a vote of our stockholders.

STOCK INCENTIVE COMPENSATION PLANS

WARRANTS:

To Purchase Common Stock

During the three month period ended March 30, 2013, the Company issued 325,000 shares to various individuals for consulting services performed during the period. The shares issued were valued at $0.24 per share or an aggregate price of $77,005. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

During the three month period ended June 30, 2013, the Company issued 1,420,588 shares to various individuals for consulting services performed during the period. The shares issued were valued at $0.07 - $0.12 per share or an aggregate price of $171,946. The Company also issued 1,119,078 shares as payments for accrued interest. The shares issued were valued at $0.10-$0.24 per share or an aggregate price of $132,219. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

During the three month period ended September 30, 2013, the Company issued 721,400 shares to various individuals for consulting services performed during the period. The shares issued were valued at $0.10 per share or an aggregate price of $72,140. The Company also issued 25,783 shares as payments for accrued interest. The shares issued were valued at $0.10 per share or an aggregate price of $2,578. We believe that Section 4(2) of the Securities Act of 1933, as amended, was available because these transactions did not involve a public offering and there was no general solicitation or general advertising involved in these transactions. We placed legends on the stock certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale.

A summary of warrant activity for 2014 and 2013 follows:

Warrants	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Instrinsic Value
Outstanding at January 1, 2013		35,957,583			0.33	4.26 years	$	—
Granted		8,320,000			0.24	3.38 years	$	—
Reclassified
Forfeited, expired or cancelled
Outstanding at December 31, 2013		44,277,583			0.31
Granted		3,399,000			0.27
Forfeited, expired, or cancelled		(3,212,599	)		0.25
Outstanding at December 31, 2014		44,463,984			0.31
Exercisable at December 31, 2014		44,463,984			0.31	3.47 years

We recognized approximately $2.5 million and $2.6 million of compensation costs during 2014 and 2013, respectively. 

Due to the significant uncertainty of future realization (Note 6), we did not recognize the effect of approximately $624,000 of potential tax benefits attributable to equity-based expense recorded for warrants issued to key employees for 2011.  

OPTIONS:

From time-to-time, we grant stock options as compensation for services to our employees, non-employee directors and certain consultants (“grantees”) allowing grantees to purchase our common stock pursuant to stockholder-approved stock option plans. We currently have three active incentive qualified option plans, the 1995 Incentive Plan, the 2002 Incentive Plan and the 2009 Equity Compensation Plan (collectively, the “Plans”), that provide for the granting of stock options, stock appreciation rights, limited stock appreciation rights, restricted preferred stock, and common stock grants to grantees. Grants issued under the Plans may qualify as incentive stock options (“ISOs”) under Section 422A of the Internal Revenue Code of 1986, as amended. Options for ISOs may be granted for terms of up to ten years. The vesting of options issued under the 1995 and 2002 plans generally occurs after six months for one-half of the options and after 12 months for the remaining options. For the 2009 Equity Compensation Plan, the vesting period is determined by our Compensation and Stock Option Committee. The exercise price for ISOs must equal or exceed the fair market value of the underlying shares on the date of grant. The Plans also provide for the full vesting of all outstanding options under certain change of control events. The maximum number of common shares authorized for issuance under the plans is 52,000,000. As of December 31, 2013 and 2014, the information regarding the options is set forth below.

	2014		2013
Shares available		52,000,000		52,000,000
Options outstanding (Directors and employees)		6,322,000		6,322,000
Options exercisable		6,046,334		6,046,334

In addition, under our Non-employee Directors’ Stock Option Plan, we are authorized to issue non-qualified stock options to our non-employee directors for up to 1,000,000 common shares. Each non-qualified stock option is exercisable at a price equal to the average of the closing bid and asked prices of the common stock in the over-the-counter market for the most recent preceding day there was a sale of the stock prior to the grant date. Grants of options vest in accordance with vesting schedules established by our Board of Directors’ Compensation and Stock Option Committee. Upon joining our Board of Directors, directors receive an initial grant of 25,000 options for common shares. Annually, directors are granted 15,000 options for common shares on the date of our annual meeting. As of December 31, 2014, there were 2,678,000 shares available for option grants and 10,000,000 options for common shares outstanding under the non-qualified directors’ plan, Amount of which were exercisable.

A summary of activity for 2014 and 2013 follows:

	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Instrinsic Value
Outstanding at January 1, 2013		6,261,334		0.33	8.25 years
Granted		300,000		0.25
Forfeited, expired or cancelled		-10,000		0.25
Outstanding at December 31, 2013		6,551,334		0.28	9.85  years
Granted		0
Forfeited, expired or cancelled		-143,834		.25
Outstanding at December 31, 2014		6,407,500		.28	9.85  years
Exercisable at December 31, 2014		0

The following table summarizes information about options granted and vested during the years ended December 31.

	2014		2013
Options granted		0		300,000
Weighted-average grant-date fair value ($)		N/A		0.07
Options vested		0		40,000
Fair value of vested options ($)		N/A	$	2,800

During 2014 and 2013, we granted options for common shares to employees, non-employee directors and consultants.

A summary of common stock options outstanding and exercisable as of December 31, 2014 follows:

Options Outstanding		Exercise Price Range		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Options Exercisable		Weighted- Average Exercise Price of Exercisable Options
	6,407,500		.28		.25-.65		9.85		0	N/A