Quarterly report pursuant to sections 13 or 15(d)

5. Stock Options and warrants

5. Stock Options and warrants

3 Months Ended

Mar. 31, 2013

Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. Options vest and expire according to terms established at the grant date.

Options

The Company currently issues stock options to employees, directors and consultants under the 2004 Stock Option Plan (the Plan). The Company could issue options under the Plan to acquire up to 5,000,000 shares of common stock. In February 2006, the board approved an amendment to the Plan (approved by the Shareholders in May 2006), increasing the authorized shares by 2,000,000 shares to 7,000,000 shares. At March 31, 2013, 2,750,442 were available to be granted under the Plan. Prior to 2004, the Company granted 3,250,000 options outside the Plan to officers of the Company.

The following table summarizes certain information about the Company’s stock purchase options from January 1, 2013 to March 31, 2013:

Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2013		27,278,098	$	0.27
Granted		—		—
Exercised		—		—
Forfeited or expired		—		—
Outstanding at March 31, 2013		27,278,098	$	0.27		7.8	$	20,254,356
Vested and exercisable at March 31, 2013		13,718,098	$	0.29		7.6	$	9,948,756

The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest under the Plan as of March 31, 2013 were as follows:

		Outstanding Options						Exercisable Options
Option Exercise Price Per Share		Shares		Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	$ 0.21 - $ 0.99		27,196,679		7.8	$	.27		13,636,679	$	0.28
	$ 1.00 - $ 1.99		81,419		2.5		1.36		81,419		1.36
			27,278,098		7.8	$	0.27		13,718,098	$	0.29

During the three months ended March 31, 2013, the Company amortized $404,587 of compensation cost based on the vesting of the options granted to employees in prior periods. Future unamortized compensation expense on the outstanding options at March 31, 2013 is $4,727,826.

Warrants

In March 2013, pursuant to a settlement of debt agreement, the Company granted a consultant warrant to purchase 150,000 shares of its common stock with an exercise price of $0.30 per share, vesting immediately and will expire in two years from grant date (see Note 8). The fair value of the warrant amounted to $129,622 using the Black-Scholes Merton valuation model with the following average assumptions: risk-free interest rate of 0.26%; dividend yield of 0%; volatility of 132%; and an expected life of two years.

During the period ended March 31, 2013, the Company recognized amortization expense of $24,310 and $23,251 based upon vesting of the warrants granted to an employee and a consultant in prior year, respectively.

The following table summarizes certain information about the Company’s stock purchase warrants from January 1, 2013 to March 31, 2013:

Warrants	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2013		42,205,507		$	0.31
Granted		150,000			0.30
Exercised		(14,344,600	)		0.29
Forfeited or expired		(958,723	)		0.35
Outstanding at March 31, 2013		27,052,184		$	0.32		1.8	$	18,752,321
Vested and exercisable at March 31, 2013		25,685,517		$	0.32		1.5	$	17,781,988

		Outstanding Warrants						Exercisable Warrants
Warrant Exercise Price Per Share		Shares		Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
	$ 0.25 - $ 0.99		26,552,184		1.8	$	.30		25,185,517	$	0.30
	$ 1.00 - $ 1.99		500,000		1.3		1.00		500,000		1.00
			27,052,184		1.8	$	0.32		25,685,517	$	0.32

Future unamortized compensation expense on the outstanding warrants at March 31, 2013 is $226,893.