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Stock Based Compensation
 9 Months Ended
Sep. 30, 2014
Stock Based Compensation [Abstract]  
Stock-Based Compensation

Note 5 – Stock Based Compensation

 

The Company has established the 2008 Equity Incentive Plan, which is a shareholder-approved plan that permits the granting of stock options and restricted stock to employees, directors and consultants.   The 2008 Equity Incentive Plan provides for the issuance of up to 3,550,000 shares of common stock of which 50,000 shares are available for grant as Incentive Stock Options.  The exercise price for options awarded is no less than 100% of the fair market value of the common stock on the day of grant.  The options generally vest either immediately on the date of grant or one to three years from the date of grant.

 

For the three and nine months ended September 30, 2014, the Company recorded compensation costs for options and warrants of $59,147 and $171,141 respectively, as compared to $111,114 and $650,505 for the nine and three months ended September 30, 2013. For the nine months ended September 30, 2013, compensation costs relating to the issuance of options and warrants amounted to $539,926 and the Company recorded an expense of $110,579 associated with the repricing of options and warrants held by a former consultant/outside counsel who is now an employee of the Company, while for the nine months ended September 30, 2014, there was no expense associated with the repricing of options or warrants.

 

The Company has valued the options at their date of grant utilizing the Black Scholes option pricing model.  Prior to the fourth quarter of 2009, there was not a public market for the Company shares.  Accordingly, the fair value of the underlying shares was determined based on recent transactions by the Company to sell shares to third parties and other factors determined by management to be relevant to the valuation of such shares.  Beginning in the fourth quarter of 2009, the quoted price for the Company’s shares on the OTCBB or the OTCQB, as applicable, was used to value the underlying shares.  Expected volatility is based upon a weighted average historical volatility of peer companies operating in a similar industry.  The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options.  The expected life of options used was based on the contractual life of the option granted.  The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future.  The following weighted-average assumptions were utilized in the fair value calculations for options granted:

 

    Nine Months
Ended		     Nine Months Ended  
    September 30, 2014     September 30, 2013  
             
Expected dividend yield     0 %     0 %
Expected stock price volatility     112 %      105-108 %
Risk-free interest rate     3.63  %     2.68-3.44 %
Expected life of options     .14-9.78 years       .4-9.9 years  

The following table summarizes the status of the Company’s aggregate stock options granted:

 

    Number of Shares Remaining Options     Weighted Average Exercise  Price     Weighted- Average Remaining Contractual Term   Aggregate Intrinsic  Value  
                       
Outstanding at January 1, 2014     1,386,108     $ .61              
Options granted during 2014     1,365,000     $ .19      9.8 years   $    
Options cancelled or expired during 2014     (295,917 )   $ .56              
Outstanding at September 30, 2014     2,455,191     $ .34     8.7 years   $ 0  
Exercisable at September 30, 2014     725,191     $ .60     6.7 years   $ 0  

For the nine and three months ended September 30, 2014, the Company recorded compensation costs for options granted under the plan of $139,010 and $45,553, as compared to $190,861 and $20,800 for the nine and three months ended September 30, 2013. Stock option grants amounted to 1,365,000 for the nine months ended September 30, 2014 (1,655,208 for the nine months ended September 30, 2013) while 251,250 options vested during that period (166,858 options vested for the nine months ended September 30, 2013). There were 295,917 options cancelled or expired for the nine months ended September 30, 2014, while 23,000 options were cancelled for the nine months ended September 30, 2013. No options were exercised for the nine months ended September 30, 2014 or September 30, 2013.

 

The weighted average fair value of options granted during the nine months ended September 30, 2014 was $0.19 per share, compared to $0.45 per share for the nine months ended September 30, 2013. 

 

For the nine months ended September 30, 2013, the Company recorded expenses totaling $13,575 associated with the repricing of 25,000 options awarded to a former consultant/outside counsel who is now an employee of the Company. No such expense was recorded for the nine months ended September 30, 2014.

 

On December 13, 2010, the Board of Directors approved a restricted stock grant award to certain employees in lieu of future salary cash payments.  The employees forfeited salary over a twelve-week period to purchase common shares, which were valued at fair market value as of the date of grant.  The Compensation Committee of the Company’s Board of Directors have approved a change in the vesting date for restricted stock held by certain employees from April 1, 2011 to April 1, 2015. A total of 55,969 shares vested on April 1, 2011, and 118,378 shares remain outstanding and are scheduled to vest on April 1, 2015.

 

On March 31, 2014, Adeeb Saba was named Chief Operating Officer and the Company awarded him 250,000 shares of restricted common stock pursuant to the Company’s 2008 Equity Incentive Plan, which will vest one half each on the first and second anniversary of the award. Compensation costs associated with this award amount to $72,500 and will be recognized over the vesting period of the stock. On May 28, 2014, the Company awarded an employee 100,000 shares of restricted common stock pursuant to the Company’s 2008 Equity Incentive Plan, which will vest one half each on March 31, 2015 and March 31, 2016. Compensation costs associated with this award amount to $15,000 and will be recognized over the vesting period of the stock. On June 16, 2014, Stephen Brown was named as the acting Chief Financial Officer and the Company awarded him 50,000 shares of restricted common stock pursuant to the Company’s 2008 Equity Incentive Plan, of which 10,000 shares vested immediately and the remaining 40,000 shares shall vest on December 16, 2014. Compensation costs associated with this award amount to $9,000 and will be recognized over the vesting period of the stock.

The following table summarizes the status of the Company’s restricted common stock awards:

 

 

Restricted Shares

   Number of 
Restricted Shares		     Weighted Average 
Fair Value at 
Grant Date		  
Non-vested at September 30, 2014     118,378     $ 2.80  
Awarded during 2014     400,000     $ .23  
Cancelled or expired     (138,296 )   $ .36  
Non-vested at September 30, 2014     380,082     $ .39  

 

The compensation expense related to these grants were $30,026 for the nine months ended September 30, 2014. There was no expense for the nine months ended September 30, 2013.