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9. Stock options and warrants | 12 Months Ended
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Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
9. | Stock options and warrants
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 December 31, 2011, 2,732,108 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. 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 December 31, 2011 was 8.5 years. Stock option activity for the years ended December 31, 2011 and 2010, which includes 3,250,000 options granted outside and prior to the adoption of the Plan, was as follows:
|  | Weighted Avg. Options |  |  | Weighted Avg. Exercise Price |
Options, January 1, 2004 |  |  | 13,250,000 |  |  | $ | 0.11 |
Options granted |  |  | 1,172,652 |  |  |  | 1.03 |
Options exercised |  |  | — |  |  |  | — |
Options cancelled |  |  | — |  |  |  | — |
Options, December 31, 2004 |  |  | 14,422,652 |  |  |  | 0.18 |
Options granted |  |  | 2,085,909 |  |  |  | 0.92 |
Options exercised |  |  | — |  |  |  | — |
Options cancelled |  |  | (10,000,000 | ) |  |  | 0.10 |
Options, December 31, 2005 |  |  | 6,508,561 |  |  |  | 0.53 |
Options granted |  |  | 1,313,605 |  |  |  | 1.21 |
Options exercised |  |  | (2,860,000 | ) |  |  | 0.10 |
Options forfeited |  |  | (962,607 | ) |  |  | 0.84 |
Options cancelled |  |  | — |  |  |  | — |
Options, December 31, 2006 |  |  | 3,999,559 |  |  |  | 0.99 |
Options granted |  |  | 238,679 |  |  |  | 0.55 |
Options exercised |  |  | — |  |  |  | — |
Options forfeited |  |  | (49,793 | ) |  |  | 1.96 |
Options cancelled |  |  | — |  |  |  | — |
Options, December 31, 2007 |  |  | 4,188,445 |  |  | $ | 0.95 |
Options granted |  |  | 2,700,000 |  |  |  | 0.28 |
Options exercised |  |  | — |  |  |  | — |
Options forfeited |  |  | (2,287,220 | ) |  |  | 1.00 |
Options cancelled |  |  | — |  |  |  | — |
Options, December 31, 2008 |  |  | 4,601,225 |  |  | $ | 0.53 |
Options granted |  |  | 333,333 |  |  |  | 0.30 |
Options exercised |  |  | (83,333 | ) |  |  | 0.27 |
Options forfeited |  |  | — |  |  |  | — |
Options cancelled |  |  | — |  |  |  | — |
Options, December 31, 2009 |  |  | 4,851,225 |  |  | $ | 0.52 |
Options granted |  |  | 181,818 |  |  |  | 0.55 |
Options exercised |  |  | (195,555 | ) |  |  | 0.27 |
Options forfeited |  |  | — |  |  |  | — |
Options cancelled |  |  | — |  |  |  | — |
Options, December 31, 2010 |  |  | 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 |
The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest under the Plan as of December 31, 2011 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 |  |  |  | 23,740,346 |  |  | 8.6 |  |  | $ | 0.29 |  |  |  | 6,140,346 |  |  | $ | 0.40 |
$ 1.00 - $ 1.99 |  |  |  | 327,546 |  |  | 3.4 |  |  | $ | 1.25 |  |  |  | 327,546 |  |  | $ | 1.25 |
|  |  |  |  | 24,067,892 |  |  |  |  |  | $ | 0.30 |  |  |  | 6,467,892 |  |  | $ | 0.45 |
As of December 31, 2011 the market price of the Company’s stock was $0.37 per share. Future compensation expense on the options which were not exercisable at December 31, 2011 is $5,581,289. At December 31, 2011 the aggregate intrinsic value of the options outstanding was $2,501,667. During the year ended December 31, 2011, the Company granted 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 year ended December 31, 2011, the Company amortized $1,252,942 of compensation cost based on the vesting of the options. Future unamortized compensation expense on the outstanding options at December 31, 2011 is $5,581,289. 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 Black-Scholes-Merton valuation model and were expensed at the time of grant. The options have an exercise price of $0.30 per share, vesting immediately and expire in ten years from date of grant. During the year ended December 31, 2011, the Company recognized amortization expense of $8,058 based upon its vesting of option granted to an employee in prior years. Black-Scholes value of options During the years ended December 31, 2011 and 2010, the Company valued options for pro-forma purposes at the grant date using the Black-Scholes-Merton valuation model with the following average assumptions:
|  | 2011 |  | 2010
Expected life (years) |  |  | 6.00 |  |  |  | 5.50 |
Risk free interest rate |  |  | 1.95 | % |  |  | 3.63 | %
Volatility |  |  | 141.97 | % |  |  | 129.95 | %
Expected dividend yield |  |  | 0.00 | % |  |  | 0.00 | %
The weighted average fair value for options granted in 2011 and 2010 were $0.37 and $0.53, respectively. Warrants The following table summarizes certain information about the Company’s stock purchase warrants (including the warrants discussed in Note 9).
|  | Warrants |  |  | Weighted Avg. Exercise Price |
Warrants outstanding, January 1, 2004 |  |  | 14,252,414 |  |  |  | 0.48 |
Warrants granted |  |  | 2,372,500 |  |  |  | 1.27 |
Warrants exercised |  |  | (960,500 | ) |  |  | 0.20 |
Warrants cancelled |  |  | — |  |  |  | — |
Warrants outstanding, December 31, 2004 |  |  | 15,664,414 |  |  |  | 0.62 |
Warrants granted |  |  | 5,198,574 |  |  |  | 1.16 |
Warrants exercised |  |  | (50,500 | ) |  |  | 0.99 |
Warrants cancelled |  |  | (20,000 | ) |  |  | 1.50 |
Warrants outstanding, December 31, 2005 |  |  | 20,792,488 |  |  |  | 0.75 |
Warrants granted |  |  | 3,624,894 |  |  |  | 1.28 |
Warrants exercised |  |  | (2,328,452 | ) |  |  | 0.68 |
Warrants cancelled |  |  | (1,191,619 | ) |  |  | 1.46 |
Warrants outstanding, December 31, 2006 |  |  | 20,897,311 |  |  | $ | 0.81 |
Warrants granted |  |  | 3,602,701 |  |  |  | 0.64 |
Warrants exercised |  |  | — |  |  |  | — |
Warrants cancelled |  |  | (6,580,984 | ) |  |  | 1.06 |
Warrants outstanding, December 31, 2007 |  |  | 17,919,028 |  |  | $ | 0.67 |
Warrants granted |  |  | 3,931,708 |  |  |  | 0.42 |
Warrants exercised |  |  | (1,064,650 | ) |  |  | 0.50 |
Warrants cancelled |  |  | (10,386,083 | ) |  |  | 0.56 |
Warrants outstanding, December 31, 2008 |  |  | 10,400,003 |  |  | $ | 0.70 |
Warrants granted |  |  | 5,247,276 |  |  |  | 0.36 |
Warrants exercised |  |  | — |  |  |  | — |
Warrants cancelled |  |  | (2,300,515 | ) |  |  | 0.95 |
Warrants outstanding, December 31, 2009 |  |  | 13,346,764 |  |  | $ | 0.52 |
Warrants granted |  |  | 14,058,032 |  |  |  | 0.32 |
Warrants exercised |  |  | — |  |  |  | — |
Warrants cancelled |  |  | (4,425,728 | ) |  |  | 0.53 |
Warrants outstanding, December 31, 2010 |  |  | 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 |
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 Merton valuation 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 Merton valuation 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 Merton valuation 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 share 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. See Note 5. At December 31, 2011 the price of the Company’s common stock was $0.37 per share and the aggregate intrinsic value of the warrants outstanding was $3,512,888.
|  |  | 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 |  |  |  | 48,106,280 |  |  | 1.9 |  |  | $ | 0.30 |  |  |  | 46,106,280 |  |  | $ | 0.30 |
$ 1.00 - $ 1.99 |  |  |  | 1,000,000 |  |  | 1.5 |  |  | $ | 1.00 |  |  |  | 1,000,000 |  |  | $ | 1.00 |
|  |  |  |  | 49,106,280 |  |  |  |  |  | $ | 0.32 |  |  |  | 47,106,280 |  |  | $ | 0.32 |
Included in the table above are 8,322,500 warrants at an exercise price of $0.25 per share. Based upon these warrant agreements, the exercise price may be reduced if the Company sells equity to any person or entity at a price per share or conversion price or exercise price per share which shall be less than the Warrant exercise price in respect of the Warrant Shares then in effect. The reset of the warrant exercise price gives rise to the characterization of these instruments as derivative liabilities. (See note 7).

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 + Details
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