Stockholders' Deficiency

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

6. Stockholders' Deficiency

Preferred Stock

As of June 30, 2016 and December 31, 2015, the Company had accrued contractual dividends of $171,116 and $319,853, respectively, related to the Series B Preferred Stock.  On January 1, 2016 and 2015, the Company issued 33,847 and 31,633 shares of Series B convertible preferred stock valued at approximately $320,000 and $299,000, 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 holders as payment in kind for dividends.

Stock Options

Valuation

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

	For The Three Months Ended		For The Six Months Ended
	June 30,		June 30,
	2016	2015	2016	2015
Risk free interest rate	1.25%	1.35% to 1.85%	1.25% to 2.12%	1.35% to 1.85%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	200.0%	195.0%	199.0% to 200.0%	195.0%
Expected life in years	5.5	5.5 to 10.0	5.5 to 10.0	5.5 to 10.0

The Company estimated forfeitures at a weighted average annual rate of 3% to 4% for the three and six months ended June 30, 2016 and 2015.

Grants

The weighted average fair value of the stock options granted during the three and six months ended June 30, 2016 was $0.29 and $0.26 per share, respectively.  The weighted average fair value of the stock options granted during the three and six months ended June 30, 2015 was $0.09 per share.

During the six months ended June 30, 2016, the Company granted options to consultants and directors of the Company to purchase an aggregate of 267,102 shares of common stock under a previously approved plan at exercise price ranging between $0.24 and $0.29 per share for an aggregate grant date value of $68,380.  The options vested on the grant date and have a term of ten years.

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 $37,301 and $112,439 for the three and six months ended June 30, 2016, respectively, and $107,500 and $186,289 for the three and six months ended June 30, 2015, respectively.

As of June 30, 2016, stock-based compensation expense related to stock options of $969,620 remains unamortized, including $77,751 which is being amortized over the weighted average remaining period of 1.9 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, 2016 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Outstanding, January 1, 2016		5,341,284		$	0.70
Granted		267,102			0.26
Exercised		-			-
Forfeited		(499,000	)		1.62
Outstanding, June 30, 2016		5,109,386		$	0.58		7.5	$	699,666
Exercisable, June 30, 2016		3,931,053		$	0.49		7.6	$	516,200

The following table presents information related to stock options at June 30, 2016:

		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
$	0.09 - $2.20	$	0.21		4,577,386	$	0.23		7.8		3,649,053
$	2.21 - $3.80		3.31		400,000		2.50		3.4		150,000
$	3.81 - $6.99		5.49		132,000		5.49		5.3		132,000
		$	0.58		5,109,386	$	0.49		7.6		3,931,053

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,
	2016	2015	2016	2015
Risk free interest rate	n/a	1.26% to 1.68%	1.58%	1.26% to 1.75%
Dividend yield	n/a	0.00%	0.00%	0.00%
Expected volatility	n/a	195.0% to 197.0%	200.0%	195.0% to 197.0%
Contractual term in years	n/a	5.0 to 7.3	5.0	5.0 to 7.5

Grants

The weighted average fair value of the stock warrants granted during the six months ended June 30, 2016 was $0.24 per share.  There were no stock warrants granted during the three months ended June 30, 2016.  The weighted average fair value of the stock warrants granted during the three and six months ended June 30, 2015, was $0.09 and $0.08 per share, respectively.

Exercise

During the three and six months ended June 30, 2016, the Company issued an aggregate of 28,242 shares of Common Stock to a holder of warrants who elected to exercise warrants to purchase 75,000 shares of Common Stock on a "cashless" basis under the terms of the warrants.  The warrants had an exercise price of $0.25 per share.

The aggregate intrinsic value of the warrants exercised was $11,325 for the three and six months ended June 30, 2016.

There was no stock-based compensation expense related to warrants recorded in the three and six months ended June 30, 2016.  Stock-based compensation expense related to warrants for the three and six months ended June 30, 2015 was recorded in the condensed consolidated statements of operations as a component of selling, general and administrative expenses totaled $12,063 and $12,279, respectively.  As of June 30, 2016, stock-based compensation expense related to warrants of $576,840 remains unamortized.  The remaining $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, 2016 is presented below:

				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Life		Intrinsic
	Warrants			Price		In Years		Value
Outstanding, January 1, 2016		10,046,198		$	0.41
Granted		75,000			0.25
Exercised		(75,000	)		0.25
Forfeited		-			-
Outstanding, June 30, 2016		10,046,198		$	0.40		2.9	$	512,142
Exercisable, June 30, 2016		9,796,198		$	0.34		2.9	$	512,142

The following table presents information related to stock warrants at June 30, 2016:

		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
$	0.10 - $0.35	$	0.25		9,496,198	$	0.25		3.0		9,496,198
$	0.36 - $3.00		2.90		520,000		2.90		0.3		270,000
$	3.01 - $4.95		4.95		30,000		4.95		1.3		30,000
$	0.10 - $4.95	$	0.40		10,046,198	$	0.34		2.9		9,796,198