Quarterly report pursuant to sections 13 or 15(d)

4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

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4. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2013
Notes to Financial Statements  
NOTE 4 - STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock.  On September 7, 2013, the 2010 plan was amended to increase the number of shares of common stock issuable under the 2010 Plan to 7,500,000.  As of September 30, 2013 and December 31, 2012, there were 578,400 options outstanding under the 2010 Plan.

 

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock.  In December 2012, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 12,000,000 shares.  During the period ended March 31, 2013, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 17,500,000.  As of September 30, 2013 and December 31, 2012, there were 5,308,000 and 7,130,000 options outstanding under the 2011 Plan, respectively.

 

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options typically expire in five to seven years.

 

The fair value of stock options granted or revalued for three and nine months ended September 30, 2013 and 2012 was calculated with the following assumptions:

 

    2013     2012  
Risk-free interest rate     0.47% - 1.55 %     0.31% - 1.27 %
Expected dividend yield     0 %     0 %
Volatility factor     85 %     90 %
Expected life of option   3.25 to 6 years     2.90 to 7 years  

 

The weighted-average fair value of stock options granted during the periods ended September 30, 2013 and 2012, under the Black-Scholes option pricing model was $0.21 per share.

 

The Company recognized $472,820 and $44,638 of stock-based compensation costs in the accompanying statement of operations for the three months ended September 30, 2013 and 2012, respectively. The three months ended September 30, 2013 includes additional compensation expense of $252,345 relating to the future vesting of options per the terms of a terminated employee’s employment agreement. The Company recognized $857,851 and $161,504 of stock-based compensation costs in the accompanying statement of operations for the nine months ended September 30, 2013 and 2012, respectively. No actual tax benefit was realized from stock option exercises during these periods. As of September 30, 2013, there was approximately $213,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 1.06 years. 

 

The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2013:

 

    Shares     Exercise Price per Share     Weighted Average Exercise Price per Share  
Outstanding as of December 31, 2012     7,708,400     $ 0.10-1.85     $ 0.42  
      Granted     708,000       0.42-1.00       0.68  
      Exercised     -       -       -  
      Options forfeited/cancelled     (2,530,000 )     0.50-1.00       0.51  
Outstanding as of September 30, 2013     5,886,400     $ 0.10-1.85     $ 0.42  

 

The following table summarizes information about stock options that are vested or expected to vest at September 30, 2013:

 

Vested or Expected to Vest     Exercisable Options  
            Weighted     Weighted                 Weighted     Weighted        
            Average     Average                 Average     Average        
            Exercise     Remaining     Aggregate     Number     Exercise     Remaining     Aggregate  
Exercise     Number of     Price Per     Contractual     Intrinsic     of     Price     Contractual     Intrinsic  
Price     Options     Share     Life (Years)     Value     Options     Per Share     Life (Years)     Value  
$ 0.10       1,800,000     $ 0.10       3.13     $ 1,026,000       1,612,500     $ 0.10       3.15     $ 919,125  
  0.42       98,000       0.42       7.26       24,500       -       0.42       -       -  
  0.50       3,330,000       0.50       2.09       566,100       2,371,668       0.50       2.34       403,184  
  0.57       400,000       0.57       4.87       40,000       83,280       0.57       4.87       8,328  
  1.00       180,000       1.00       2.32       -       135,000       1.00       1.63       -  
  1.85       78,400       1.85       2.00       -       78,400       1.85       2.00       -  
$ 0.10-1.85       5,886,400     $ 0.41       2.69     $ 1,656,600       4,280,848     $ 0.39       2.67     $ 1,330,637  

 

The weighted-average remaining contractual life for stock options exercisable at September 30, 2013 is 2.67 years. At September 30, 2013, the Company has 12,192,000 and 6,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively. The intrinsic value for fully vested, exercisable options was $1,330,637 and $418,000 at September 30, 2013 and December 31, 2012, respectively. No actual tax benefit was realized from stock option exercises during these periods.