Quarterly report pursuant to sections 13 or 15(d)

6. Stock options and warrants

v2.3.0.11
6. Stock options and warrants
9 Months Ended
Sep. 30, 2011
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]
6.  Stock options and warrants

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs.  Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.  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 September 30, 2011, 2,672,108 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 of which 250,000 are still outstanding.

Employee options vest according to the terms of the specific grant and expire from 5 to 10 years from date of grant. Non-employee option grants to date are vested upon issuance. The weighted-average, remaining contractual life of employee options outstanding at September 30, 2011 was 8.6 years. Stock option activity for the period January 1, 2011 to September 30, 2011, was as follows:

Options
 
Shares
   
Weighted-
Average
Exercise
Price
   
Weighted-
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Outstanding at January 1, 2011
   
4,837,488
   
$
0.53
             
Granted
   
17,600,000
     
0.25
             
Exercised
   
(77,778
)
   
0.27
             
Forfeited or expired
   
(241,818
)
   
0.97
             
Outstanding at September 30, 2011
   
22,117,892
   
$
0.30
     
8.6
   
$
2,000
 
Vested and exercisable at September 30, 2011
   
4,517,892
   
$
0.51
     
5.6
   
$
2,000
 

The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest under the Plan as of September 30, 2011 were as follows:

   
Outstanding Options
 
Exercisable Options
 
Option
Exercise Price Per Share
 
Shares
 
Life
(Years)
 
Weighted
Average Exercise
Exercise Price
 
Shares
 
Weighted
Average Exercise
Price
 
$0.21 - $ 0.99  
21,790,346
 
8.6
 
$
.29
 
4,190,346
 
$
0.46
 
$1.00 - $ 1.99  
327,546
 
3.6
   
1.25
 
327,546
   
1.25
 
     
22,117,892
 
8.6
 
$
0.30
 
4,517,892
 
$
0.51
 

On January 29, 2011, the Company issued 17,600,000 options to Cecil Bond Kyte, its chairman and chief executive officer. The options have an exercise price of $0.25 per share, vest over a five year period, and expire ten years from date of grant.   Twenty percent of the options shall vest on each of the first five anniversary dates.  In the event of a change of control of the Company, all unvested options shall vest on the date of the change of control.  During the nine months ended September 30, 2011, the Company amortized $919,289 of compensation cost based on the vesting of the options.  Future unamortized compensation expense on the outstanding options at September 30, 2011 is $5,923,000. 

Black-Scholes-Merton value of options

During the nine months ended September 30, 2011 and 2010, the Company valued options at the grant date using the Black-Scholes-Merton pricing model with the following average assumptions:

   
September 30,
   
2011
   
2010
 
             
Expected life (years)
 
6.0
   
5.5
 
Risk free interest rate
 
1.95%
   
3.63%
 
Volatility 
 
134.82%
   
129.95%
 
Expected dividend yield
 
0.00%
   
0.00%
 

The weighted average fair value for options granted in 2010 was $0.53.  The weighted average fair value for options granted during the nine months ended September 30, 2011 was $0.39.

Warrants

The following table summarizes certain information about the Company’s stock purchase warrants from January 1, 2011 to September 30, 2011:

Warrants
 
Shares
   
Weighted-
Average
Exercise
Price
   
Weighted-
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Outstanding at January 1, 2011
   
22,979,068
   
$
0.40
             
Granted
   
19,533,020
     
0.30
             
Exercised
   
(224,000
)
   
0.47
             
Forfeited or expired
   
(1,735,877
)
   
0.61
             
Outstanding at September 30, 2011
   
40,552,211
   
$
0.33
     
1.3
   
$
 
Vested and exercisable at September 30, 2011
   
40,552,211
   
$
0.33
     
1.3
   
$
 

   
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  
39,552,211
 
1.3
 
$
0.31
 
39,552,211
 
$
0.31
 
$1.00 - $ 1.99  
1,000,000
 
1.7
 
$
1.00
 
1,000,000
 
$
1.00
 
$2.00 - $ 2.70  
 
 
$
 
 
$
 
     
40,552,211
 
1.3
 
$
0.33
 
40,552,211
 
$
0.33