Annual report pursuant to section 13 and 15(d)

6. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

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6. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2013
Notes to Financial Statements  
NOTE 6 - 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 December 31, 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 December 31, 2013 and December 31, 2012, there were 5,163,000 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  for years ended December 31, 2013 and 2012 was calculated with the following assumptions:

    2013     2012  
Risk-free interest rate     0.47% - 1.55 %     0.43% - 1.27 %
Expected dividend yield     0 %     0 %
Volatility factor     85% - 96 %     85 - 90 %
Expected life of option   3.25 to 6 years     3.50 to 7 years  

 

 

The weighted-average fair value of stock options granted during the years ended December 31, 2013 and 2012, under the Black-Scholes option pricing model was $0.21 and $0.30 per share, respectively. For the years ended December 31, 2013 and 2012, the Company recorded stock-based compensation expense of $1,554,913 and $480,108, respectively, in connection with share-based payment awards. As of December 31, 2013, there was approximately $173,000 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 0.70 years.

 

The following table summarizes the Company’s stock option activity during the years ended December 31, 2013 and 2012: 

 

    Shares     Exercise Price per Share     Weighted Average Exercise Price per Share  
Outstanding as of December 31, 2011     1,578,400     $ 0.10-1.85     $ 0.19  
      Granted     6,130,000       0.10-0.50       0.48  
      Exercised     -       -       -  
      Options forfeited/cancelled     -       -       -  
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     (13,104 )     0.50       0.50  
      Options forfeited/cancelled     (2,661,896 )     0.42-1.00       0.52  
Outstanding as of December 31, 2013     5,741,400     $ 0.10-1.85     $ 0.40  

 

During the year ended December 31, 2013, the Company received a notice of cashless stock options exercise in which the holder elected to exercise 20,000 vested options.  The stock options which were exercised had an exercise price of $0.50 per share.  Based upon the Company’s stock price on the date of exercise, as well as the cashless exercise formula, 13,104 shares were issued to the holder with the remaining 6,896 stock options forfeited during the year ended December 31, 2013.

 

The following table summarizes information about stock options that are vested or expected to vest at December 31, 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       2.87     $ 2,376,000       1,706,250     $ 0.10       2.88     $ 2,252,250  
  0.42       63,000       0.42       7.01       63,000       63,000       0.42       7.01       63,000  
  0.50       3,310,000       0.50       4.33       3,045,200       2,830,835       0.50       4.37       2,604,368  
  0.57       400,000       0.57       4.62       340,000       133,280       0.57       4.62       113,288  
  1.00       90,000       1.00       4.14       37,800       67,500       1.00       4.14       28,350  
  1.85       78,400       1.85       1.75       -       78,400       1.85       1.75       -  
$ 0.10-1.85       5,741,400     $ 0.40       3.89     $ 5,862,000       4,879,265     $ 0.39       3.85     $ 5,061,256  

 

The following table sets forth the status of the Company’s non-vested stock options as of December 31, 2013:

 

   

Number of

Options

   

Weighted-Average

Grant-Date

Fair Value

 
Non-vested as of December 31, 2011     882,950     $ .20  
Granted     6,130,000       .30  
Forfeited     -       -  
Vested     (1,623,367 )     .27  
                 
Non-vested as of December 31, 2012     5,389,583     $ .30  
Granted     708,000       .21  
Forfeited     (2,655,000 )     .30  
Vested     (2,580,448 )     .29  
                 
Non-vested as of December 31, 2013     862,135     $ .25  

 

The weighted-average remaining contractual life for options exercisable at December 31, 2013 is 3.89 years. At December 31, 2013 the Company has 12,337,000 and 6,921,600 options available for grant under the 2011 Plan and 2010 Plan, respectively.

 

The aggregate intrinsic value for fully vested, exercisable options was $5,061,256 and $418,000 at December 31, 2013 and 2012, respectively.  The aggregate intrinsic value of options exercised during the year ended December 31, 2013 was $12,449.  There were no options exercised during the year ended December 31, 2012.  The actual tax benefit realized from stock option exercises during the year ended December 31, 2013 was $19,000.  There was no actual tax benefit realized from stock options exercises during fiscal 2012.