Share-based Compensation

12 Months Ended

Dec. 31, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-based Compensation

Note 11 - Share-based Compensation

Options

At our Annual Meeting of Shareholders during the year ended December 31, 2013, our shareholders approved an amendment to our 2010 Stock Plan to increase the number of shares of common stock reserved thereunder by 2,000,000 shares. In addition, during the year ended December 31, 2014 the board approved an additional 2,000,000 shares to be available for award under the 2010 Stock Plan, subject to shareholder approval, which brought the total available for award under the 2010 Stock Plan to 7,000,000 shares. The exercise price of an option is established by the Board of Directors on the date of grant and is generally equal to the market price of the stock on the grant date.  The Board of Directors may determine the vesting period for each new grant. Options issued are exercisable in whole or in part for a period as determined by the Board of Directors of up to ten years from the date of grant.

During the year ended December 31, 2013, our 2003 Stock Plan expired and no further awards are allowed under that plan.

We estimated the fair value of each option award at the grant date by using the Black-Scholes option pricing model with the following range of assumptions for awards made during the years ended December 31, 2014 and 2013:

	2014		2013
Dividend yield	0	%	0	%
Expected volatility, in years	90	%	90	%
Risk-free interest rates	1.5	%	1.4% to 2.8	%
Expected lives, in years	5		5 to 10

During the year ended December 31, 2014, we awarded options to purchase 175,000 shares of our common stock at a weighted average exercise price of $0.84 to an officer and two of our directors. The right to exercise these options is on the date of award. We estimated the fair value of these options to be approximately $102,500 which was charged to expense in our statement of operations during the period. We use the Black-Scholes option pricing model to estimate the fair values, with the following range of assumptions: (i) no dividend yield, (ii) expected volatility of 90%, (iii) risk-free interest rates of 1.5%, and (iv) expected lives of five years.

In addition to the options which vested on the date of award, we amortize certain options over vesting periods which included certain periods during the year ended December 31, 2014 and consequently we charged to operating expenses approximately $433,400 during the year ended December 31, 2014, respectively.

During the year ended December 31, 2013, we awarded options to purchase 3,085,000 shares of our common stock at a weighted average exercise price of $0.54 per share to employees, directors and consultants. The right to exercise these options is either on the date of award or based on (i) service time and (ii) in certain instances the optionee’s achievement of specific objectives. We estimate the fair value on the date of grant for the service time-vested options awarded during the year and amortized that fair value over the service time requirement. For those option awards that vest on the optionee’s achievement of certain objectives, until it is probable that the optionee will achieve the specific objective, the award is not earned and the fair value of the option is not estimated nor charged to operating expenses. We use the Black-Scholes option pricing model to estimate fair value of each option awarded. During the year ended December 31, 2013, an aggregate of approximately $529,500 was recognized in operating expenses in relation to these options.

The following table summarizes our stock option activity for the periods presented:

		Weighted-
	Number	Average
	of Shares	Exercise
	Issuable	Price
Balance, January 1, 2013	5,710,125	$	1.10
Granted	3,085,000		0.54
Exercised	(2,500)		0.88
Cancelled	(1,290,204)		0.36
Balance, December 31, 2013	7,502,421	$	1.00
Granted	175,000		0.84
Exercised	(186,225)		0.88
Cancelled	(3,363,068)		0.96
Balance, December 31, 2014	4,128,128	$	1.04

During the years ended December 31, 2014 and 2013, we issued 23,693 and 300 shares of common stock, respectively pursuant to a cashless exercise of stock option to acquire 186,225 and 2,500 shares of common stock, respectively. The intrinsic value of these shares of common stock were approximately $163,900 and $2,200, respectively.

The following table summarizes options outstanding at December 31, 2014:

		Weighted-		Weighted-
	Number	Average		Average	Aggregate
	of Shares	Exercise		Remaining	Intrinsic
	Issuable	Price		Term (Years)	Value
Exercisable	3,438,128	$	1.03	2.5	$	3,000
Not vested	690,000		1.06	3.4		-
Balance, December 31, 2014:	4,128,128	$	1.04	2.7	$	3,000

Warrants

From time to time, we compensate consultants, advisors and investors with warrants to purchase shares of our common stock, in lieu of cash payments. Net share settlement is available to warrant holders.

The following table sets forth our warrant activity during the periods presented:

			Weighted-
	Number		Average
	of Shares		Exercise
	Issuable		Price
Balance, January 1, 2013		27,353,151	$	0.79
Granted		14,875,004		0.60
Cancelled		(632,500)		1.56
Balance, December 31, 2013		41,595,655	$	0.69
Granted		7,435,901		0.67
Cancelled pursuant to Tender Offer		(46,276,774)		0.67
Exercised		(155,568)		0.60
Cancelled		(1,433,068)		0.87
Balance, December 31, 2014		1,166,146	$	1.13

During the year ended December 31, 2014, we issued 83,768 shares of common stock pursuant to a cashless exercise of warrants to acquire 155,568 shares of common stock with an intrinsic value of approximately $93,300.

During the year ended December 31, 2014, we issued warrants to purchase 7,275,901 shares of our common stock pursuant to our issuance and sale of our 8% convertible promissory notes, at an initial exercise price of $0.60 per share. These warrants had fair values on their dates of issuances of approximately $391,400 which was recorded as a credit to derivative liabilities and a charge to debt discount associated with our 8% convertible promissory notes. See Notes 7 and 8 for further discussion of these warrants. The estimated fair value of the warrants was computed by a third party using Monte Carlo simulation models. The following ranges of assumptions were used for the simulation models: (i) no dividend yield, (ii) expected volatility of 45%, (iii) risk-free interest rate of 0.2%, and (iv) an expected life of approximately one and one-half years.

During the year ended December 31, 2014, we issued a warrant to purchase 160,000 shares of our common stock at an exercise price of $1.20 in payment of amounts due a consultant. We estimated the fair value of this warrant to be approximately $84,700, which was charged to expense in our statement of operations during the period. We used the Black-Scholes option pricing model to estimate the fair value, with the following range of assumptions: (i) no dividend yield, (ii) expected volatility of 90%, (iii) risk-free interest rate of 0.8%, and (iv) an expected life of approximately three years.

In addition, the fair value of a previously issued warrant to a consultant which was being amortized over a service period spanning multiple reporting periods, was revalued using the Black-Scholes option pricing model, at the end of each reporting period. During the year ended December 31, 2014, we decreased the fair value by approximately $14,900 and recorded a charge in our statement of operations.  We used the Black-Scholes option pricing model to estimate the fair value, with the following range of assumptions: (i) no dividend yield, (ii) expected volatility of 90%, (iii) risk-free interest rate of approximately 0.8%, and (iv) an expected life of less than one year.

Tender Offer to Exchange Warrants for Shares of Common Stock

During June 2014, we extended an offer to exchange for shares of our common stock any and all of our outstanding warrants from the holders thereof (the “Tender Offer”). Each warrant holder was provided with the terms of the Tender Offer regarding their outstanding warrants. For every $10 of value attributed to the warrant, we offered to exchange 14.17707 shares of our common stock. The value of the warrants was derived from third parties using Monte Carlo simulation models and the Black-Scholes Option Pricing Model. The Tender Offer expired at 11:59P.M. on June 16, 2014.

Of the warrants to purchase 47.7 million shares of our common stock subject to the Tender Offer, warrants to purchase 46.3 million shares of our common stock were tendered with fair value of $4.9 million and exchanged for 35.5 million shares with a fair value on date of issuance of $24.8 million. The warrants were cancelled upon tender.

During the year ended December 31, 2013, pursuant to our 8% convertible promissory notes, we issued warrants to purchase 14,875,004 shares of our common stock at an initial exercise price of $0.60 per share. These warrants had fair values on their dates of issuances of approximately $334,100 which was recorded as a credit to derivative liabilities and a charge to debt discount associated with our 8% convertible promissory notes. See Notes 7 and 8 for further discussion of these warrants. The estimated fair value of the warrants was computed by a third party using Monte Carlo simulation models.