Stockholders' Deficiency

6 Months Ended

Jun. 30, 2014

Stockholders Deficiency

Note 6 - Stockholders' Deficiency

Common Stock

On January 15, 2014, the Company issued 21,289 shares of Common Stock to an employee in accordance with an employment agreement.  The fair value of the shares was $10,646 based on the closing price on the date of issuance.

Preferred Stock

As of June 30, 2014 and December 31, 2013, the Company had accrued contractual dividends of $149,459 and $279,380, respectively, related to the Series B convertible preferred stock. On January 1, 2014 and 2013, the Company issued 29,564 and 27,630 shares of Series B convertible preferred stock valued at $279,380 and $261,084, respectively, representing approximately $0.66 in value per share of Series B Preferred Stock outstanding on each date, to the Series B convertible preferred stock owners as payment in kind for dividends.

Stock Options

Stock-based compensation expense related to stock options was recorded in the condensed consolidated statements of operations as a component of selling, general and administrative expenses and totaled $106,352 and $268,851 for the three and six months ended June 30, 2014, respectively, and $13,799 and $326,243 for the three and six months ended June 30, 2013, respectively.

As of June 30, 2014, stock-based compensation expense related to stock options of $1,325,510  remains unamortized, including $433,941 which is being amortized over the weighted average remaining period of 1.4 years.  The remaining $891,569 is related to a performance based option where vesting is currently deemed to be improbable and no amount is being amortized.

Summary

A summary of the stock option activity during the six months ended June 30, 2014 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Outstanding, January 1, 2014		2,543,150		$	2.37
Granted		-			-
Exercised		-			-
Forfeited		(483,116	)		2.21
Outstanding, June 30, 2014		2,060,034		$	2.40		6.4	$	-
Exercisable, June 30, 2014		1,002,356		$	3.02		5.3	$	-

The following table presents information related to stock options at June 30, 2014:

		Options Outstanding				Options Exercisable
		Weighted				Weighted		Weighted
Range of		Average		Outstanding		Average		Average		Exercisable
Exercise		Exercise		Number of		Exercise		Remaining Life		Number of
Price		Price		Options		Price		In Years		Options
$	0.30 - $2.20	$	0.84		951,617	$	1.24		6.6		231,606
$	2.21 - $3.80		3.23		757,750		2.95		3.5		507,750
$	3.81 - $6.99		4.88		350,667		4.74		7.3		263,000
		$	2.40		2,060,034	$	3.02		5.3		1,002,356

Warrants

Valuation

In applying the Black-Scholes option pricing model to stock warrants, the Company used the following weighted average assumptions:

	For The Three Months Ended		For The Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013
Risk free interest rate	1.69% to 2.13%	0.74%	1.69% to 2.13%	0.87%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	171.0% to 183.0%	166.0%	171.0% to 183.0%	164.3%
Expected life in years	5.0	5.0	5.0	5.0

Grants

See Note 5 – Notes Payable for details regarding warrants granted in connection with the issuances of notes payable.

The weighted average fair value of the stock warrants granted during the three and six months ended June 30, 2014, was $0.17 and $0.21 per share, respectively.

Stock-based compensation expense related to warrants for the three and six months ended June 30, 2014 was recorded in the condensed consolidated statements of operations as a component of selling, general and administrative expenses and totaled $(852) and $(588), respectively, and $9,587 and $514,364 for the three and six months ended June 30, 2013, respectively.  As of June 30, 2014, stock-based compensation expense related to warrants of $578,831 remains unamortized, including $1,991 which is being amortized over the weighted average remaining period of 1.3 years.  The remaining grant date value of $576,840 is related to a performance based warrant where vesting is currently deemed to be improbable and no amount is being amortized.

A summary of the stock warrant activity during the six months ended June 30, 2014 is presented below:

			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Life		Intrinsic
	Warrants		Price		In Years		Value
Outstanding, January 1, 2014		2,342,846	$	0.96
Granted		225,000	$	0.35
Exercised		-	$	-
Forfeited		-		-
Outstanding, June 30, 2014		2,567,846	$	0.91		3.5	$	-
Exercisable, June 30, 2014		2,317,846	$	0.69		3.6	$	-

The following table presents information related to stock warrants at June 30, 2014:

		Warrants Outstanding				Warrants Exercisable
		Weighted				Weighted		Weighted
Range of		Average		Outstanding		Average		Average		Exercisable
Exercise		Exercise		Number of		Exercise		Remaining Life		Number of
Price		Price		Warrants		Price		In Years		Warrants
$	0.25 - $0.35	$	0.28		1,975,000	$	0.28		3.9		1,975,000
$	0.36 - $3.00		2.91		562,846		2.91		2.2		312,846
$	3.01 - $4.95		4.95		30,000		4.95		3.3		30,000
$	0.25 - $4.95	$	0.91		2,567,846	$	0.69		3.6		2,317,846

Services Contributed

Effective January 1, 2013 through April 30, 2014, an executive officer of the Company waived payment for services contributed.  As a result, the Company imputed the value of the services contributed based on a compensation rate previously approved by the Compensation Committee and recorded salary expense of $29,167 and $116,667 for the three and six months ended June 30, 2014, respectively, with a corresponding credit to stockholders’ deficiency.  On April 28, 2014, the Compensation Committee approved the payment of an annual salary of $150,000 to the Company’s Chief Executive Officer, effective May 1, 2014.