9. 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. 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 its 2004 Stock Option Plan (the Plan). The
Company could issue options under the Plan to acquire up to 7,000,000 shares of common stock as amended in May 2006.
From
the Plans inception in 2004 up to December 31, 2013, the Company granted options to purchase 9,091,815 shares under the
Plan, of which 4,293,574 shares were subsequently cancelled or forfeited and made available for grants under the Plan. As of December
31, 2013, 2,201,759 shares were available to be granted under the Plan.
From
the Companys inception in February 1998 up to December 31, 2013, a total of 37,050,000 shares were granted outside of the
Plan, of which, 17,430,000 shares were subsequently cancelled or forfeited. During the year ended December 31, 2013, there were
no shares granted outside the Plan while 7,040,000 shares granted outside the Plan in 2011 were cancelled. During the year ended
December 31, 2012, 4,000,000 shares were granted outside the Plan.
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 have vested upon issuance and up to 2 years from the date of grant. The weighted-average, remaining
contractual life of employee and Non-employee options outstanding at December 31, 2013 was 7.1 years. Stock option
activity for the period January 1, 2011 to December 31, 2013, was as follows:
|
|
Weighted
Avg. Options |
|
|
Weighted
Avg. Exercise Price |
|
Options, January 1, 2011 |
|
|
4,837,488 |
|
|
$ |
0.52 |
|
Options granted |
|
|
19,800,000 |
|
|
|
0.26 |
|
Options exercised |
|
|
(77,778 |
) |
|
|
0.27 |
|
Options forfeited |
|
|
(310,000 |
) |
|
|
0.76 |
|
Options cancelled |
|
|
(181,818 |
) |
|
|
0.55 |
|
Options, December 31, 2011 |
|
|
24,067,892 |
|
|
$ |
0.30 |
|
Options granted |
|
|
4,858,000 |
|
|
|
0.30 |
|
Options exercised |
|
|
(776,667 |
) |
|
|
0.47 |
|
Options forfeited |
|
|
(871,127 |
) |
|
|
0.98 |
|
Options, December 31, 2012 |
|
|
27,278,098 |
|
|
$ |
0.27 |
|
Options granted |
|
|
207,819 |
|
|
|
1.17 |
|
Options exercised |
|
|
(115,000 |
) |
|
|
0.60 |
|
Options forfeited |
|
|
(7,061,009 |
) |
|
|
0.25 |
|
Options, December 31, 2013 |
|
|
20,309,908 |
|
|
$ |
0.28 |
|
The
weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest under the
Plan as of December 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 |
|
|
20,041,679 |
|
|
7.1 |
|
$0.27 |
|
|
17,041,679 |
|
|
$0.27 |
$ 1.00 - $ 1.99 |
|
|
268,229 |
|
|
6.1 |
|
$1.22 |
|
|
124,601 |
|
|
$1.27 |
|
|
|
20,309,908 |
|
|
|
|
$0.28 |
|
|
17,166,280 |
|
|
$0.28 |
As
of December 31, 2013 the market price of the Companys stock was $1.07 per share. At December 31, 2013 the aggregate
intrinsic value of the options outstanding was $16,060,907. Future unamortized compensation expense on the unvested outstanding
options at December 31, 2013 is approximately $705,500.
2013
|
· |
From
April up to September 2013, options to acquire 115,000 shares of common stock were exercised
resulting in net proceeds of $19,500. Included in the exercise was issuance of 50,000
shares of common stock valued at $49,000 pursuant to an exercise of options and accounted
for as partial settlement of a liability recorded in prior years. |
|
· |
In
July 2013, the Company issued options to purchase 36,364 shares of common stock to consultants
with an estimated fair value of approximately $25,000 using the Black-Scholes Option
Pricing model. The options are exercisable at $1.10/share, vest over a period of one
year and expire in two years from the date of grant. During the year ended December 31,
2013, the Company recognized compensation costs of $16,000 based on the fair value of
options that vested. |
|
· |
From
July up to September 2013, the Company issued options to purchase 171,455 shares of common
stock to employees, officers and members of the Board of Directors with a fair value
of approximately $176,000 using the Black-Scholes Option Pricing model. The options are
exercisable at $1.09/share up to $1.71/share, vest over a period of one year and expire
in ten years from the date of grant. During the year ended December 31, 2013, the Company
recognized compensation costs of $85,157 based on the fair value of options that vested. |
|
· |
In
November 2013, pursuant to separation agreement with an Officer of the Company, the Company
cancelled unvested option to purchase 7,040,000 shares of common stock at $0.25 and modified
the vesting period of unvested option to purchase 3,520,000 shares of common stock at
$0.25, both granted 2011 (see Note 13). |
|
· |
During
year ended December 31, 2013, the Company amortized $403,127 of compensation cost based
on the vesting of the options granted to employees, directors and consultants in prior
years. |
2012
|
· |
On
February 1, 2012, the Company issued 4,000,000 options to its Chief Financial Officer,
valued at $1,207,193 using Black-Scholes Option Pricing model. The options have an exercise
price of $0.25 per share, vest over a four year period, and expire ten years from date
of grant. Twelve and a half percent vested immediately, twelve and a half percent will
vest on the first anniversary date, and twenty-five percent will vest on the following
three anniversary dates. During the year ended December 31, 2012, the Company recognized
compensation costs of $289,223 based upon its vesting. |
|
· |
On
May 18, 2012, the Company issued 850,000 options to its employees, valued at $242,963
using Black-Scholes Option Pricing model. The options have an exercise price of $0.30
per share, vesting immediately, and expire ten years from date of grant. |
|
· |
On
October 1, 2012, the Company issued 8,000 options to its employees, valued at $5,851
using Black-Scholes Option Pricing model. The options have an exercise price of $0.83
per share, vesting immediately, and expire ten years from date of grant. |
|
· |
During
year ended December 31, 2012, the Company amortized $1,366,846 of compensation cost based
on the vesting of the options granted to employees, directors and consultants in prior
years |
2011
|
· |
In
March 2011, the Company granted 17,600,000 options to the Companys Chairman and
Chief Executive Officer with a fair value of $6,834,231 using the Black-Scholes Option
Pricing model. 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 year ended December 31, 2011, the Company amortized $1,252,942 of compensation
cost based on the vesting of the options. |
|
· |
During
the year ended December 31, 2011, the Company granted 2,200,000 options to certain of
its director and officers. The options have an exercise price of $0.30 per share, vest
immediately and expire ten years from date of grant. The options were valued at $541,134
or $0.25 per share using the Black-Scholes Option Pricing model and were expensed at the
time of grant. |
|
· |
During
the year ended December 31, 2011, the Company recognized amortization expense of $8,058
based upon its vesting of options granted to an employee in prior years. |
Black-Scholes
Option Pricing
During
the years ended December 31, 2013, 2012 and 2011, the Company used the following average assumptions in its calculation using
the Black-Scholes Option Pricing model:
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
Expected life (years) |
|
|
1.5
5.5 |
|
|
|
5.0
7.0 |
|
|
|
6 |
|
Risk free interest rate |
|
|
0.34 1.65% |
|
|
|
0.62 1.27% |
|
|
|
1.95% |
|
Volatility |
|
|
127 130% |
|
|
|
125 140% |
|
|
|
141.97% |
|
Expected dividend yield |
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
The
weighted average fair value for options granted in 2013, 2012 and 2011 were $0.96, $0.30 and $0.37, respectively.
Warrants
The
following table summarizes certain information about the Companys stock purchase warrants.
|
|
Warrants |
|
|
Weighted Avg.
Exercise Price |
Warrants outstanding, January 1, 2011 |
|
|
22,979,068 |
|
|
$0.52 |
Warrants granted |
|
|
29,781,916 |
|
|
0.30 |
Warrants exercised |
|
|
(224,000 |
) |
|
0.47 |
Warrants cancelled |
|
|
(3,430,704 |
) |
|
0.56 |
Warrants outstanding, December 31, 2011 |
|
|
49,106,280 |
|
|
$0.32 |
Warrants granted |
|
|
9,273,316 |
|
|
0.31 |
Warrants exercised |
|
|
(12,039,846 |
) |
|
0.29 |
Warrants cancelled |
|
|
(4,134,243 |
) |
|
0.49 |
Warrants outstanding, December 31, 2012 |
|
|
42,205,507 |
|
|
$0.31 |
Warrants granted |
|
|
150,000 |
|
|
0.31 |
Warrants exercised |
|
|
(29,037,389 |
) |
|
0.29 |
Warrants cancelled |
|
|
(1,554,152 |
) |
|
0.49 |
Warrants outstanding, December 31, 2013 |
|
|
11,763,966 |
|
|
$0.31 |
At
December 31, 2013 the price of the Companys common stock was $1.07 per share and the aggregate intrinsic value of the warrants
outstanding was $8,585,149. Future unamortized compensation expense on the unvested outstanding warrants at December 31, 2013
is approximately $162,500.
|
|
|
Outstanding
Warrants |
|
Exercisable
Warrants |
Warrant Exercise
Price Per Share |
|
|
Shares |
|
|
Life (Years) |
|
Weighted Average Exercise
Price |
|
Shares |
|
|
Weighted Average Exercise
Price |
$ 0.30 - $ 0.99 |
|
|
|
11,263,966 |
|
|
2.7 |
|
$0.31 |
|
|
10,380,632 |
|
|
$0.31 |
$ 1.00 - $ 1.99 |
|
|
|
500,000 |
|
|
0.5 |
|
$1.00 |
|
|
500,000 |
|
|
$1.00 |
|
|
|
|
|
11,763,966 |
|
|
|
|
$0.34 |
|
|
10,880,632 |
|
|
$0.34 |
2013
|
· |
In
March 2013, pursuant to a settlement of debt agreement, the Company granted a consultant
a warrant to purchase 150,000 shares of its common stock with an exercise price of $0.30
per share, vesting immediately and expiring in two years from grant date. The fair value
of the warrant amounted to $129,622 using the Black-Scholes Option Pricing 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. The fair value of the warrant
of $129,622 was recorded as part of Settlement of litigation and debt in the accompanying
Consolidated Statement of Operations. |
|
· |
During
the year ended December 31, 2013, warrants to acquire 29,307,389 shares of common stock
were exercised resulting in proceeds of $8,408,718, net of direct costs incurred of $78,521. |
|
· |
During
year ended December 31, 2013, the Company recorded $84,694 of compensation cost based
on the vesting of the warrants granted to a consultant in 2011 using the Black-Scholes
Option Pricing model with the following average assumptions: risk-free interest rate
of 2.21%; dividend yield of 0%; volatility of 129%; and an expected life of 8 years.
Unamortized compensation expense on the unvested outstanding options at December 31,
2013 is approximately $8,600. |
|
· |
During
year ended December 31, 2013, the Company amortized $97,242 of compensation cost based
on the vesting of the warrants granted to employees, directors and consultants in prior
years. |
2012
|
· |
During
the year ended December 31, 2012, the Company granted warrants to consultants to purchase
1,850,000 shares of its common stock. The warrants have an exercise price of $0.30 per
share, fully vested and will expire in two to three years from grant date. Total fair
value of the warrant amounted to $517,777 using the Black-Scholes Option Pricing model
with the following average assumptions: risk-free interest rate of 0.23% to 0.39%; dividend
yield of 0%; volatility of 111%; and an expected life of three years. |
|
· |
During
the year ended December 31, 2012, the Company granted 7,423,316 warrants to acquire share
of its common stock in connection of its issuance of convertible notes. The warrants
have an average exercise price of $0.29 per share, fully vested, and will expire in two
to three years from date of grant. |
|
· |
During
the year ended December 31, 2012, the Company recognized amortization expense of $289,513
based upon its vesting of warrants granted in prior years. |
2011
|
· |
In
August 2011, the Company granted a warrant to an employee to purchase 2,000,000 shares
of its common stock pursuant to an employment agreement. The warrant is exercisable at
$0.30/share, vests over five years and will expire in ten years from grant date. Total
fair value of the warrant was determined to be $486,202 at the date of grant using a
Black-Scholes Option Pricing model with the following assumptions: risk-free interest
rate of 2.05%; dividend yield of 0%; volatility of 126%; and an expected life of seven
years. During the year ended December 31, 2011, the Company recognized amortization expense
of $69,457 based upon vesting of the warrants. |
|
· |
In
December 2011, the Company granted a warrant to an employee to purchase 1,000,000 shares
of its common stock pursuant to a separation agreement. The warrant is exercisable at
$0.30/share, vest immediately and will expire in ten years from grant date. Total fair
value of the warrant was determined to be $369,370 at the date of grant using a Black-Scholes
Option Pricing model with the following assumptions: risk-free interest rate of 1.89%;
dividend yield of 0%; volatility of 196%; and an expected life of ten years. During the
year ended December 31, 2011, the Company recognized the full value of the warrant. |
|
· |
During
the year ended December 31, 2011, the Company granted warrants to consultants to purchase
1,850,000 shares of its common stock. The warrants have an average exercise price of
$0.31/share, vests over a period up to three years and will expire in one to ten years
from grant date. Total fair value of the warrant amounted to $463,898 using the Black-Scholes
Option Pricing model with the following average assumptions: risk-free interest rate
of 0.71%; dividend yield of 0%; volatility of 136%; and an expected life of four years.
During the year ended December 31, 2011, the Company recognized amortization expense
of $411,888 based upon vesting of the warrants. |
|
· |
During
the year ended December 31, 2011, the Company granted issued 24,931,916 warrants to acquire
shares of its common stock in connection of its issuance of convertible notes. The warrant
is exercisable at $0.25/share, fully vested, and will expire in two years for date of
grant. |
|