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16. Shareholders Equity (Tables) | 12 Months Ended
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Dec. 31, 2012
Shareholders Equity Tables |
Stock Options- Assumptions | During 2012, the Company cancelled 4,660,994 options for employees whose employment had been terminated and granted 2,300,000 options to Jerold Rubinstein, the Company’s new Chairman of the Board and CEO on June 28, 2012, pursuant to an employment contract, 450,000 options to a director and 300,000 options to an officer. These options have a strike price of $0.35 - $0.38, which were the closing prices of the Company’s common stock on the day of grant and a five-year life. Mr. Rubinstein’s options vest monthly over a twelve-month period unless the employment contract is terminated for any reason, at which time the options vest in full. The director’s options vest ratably over a 36-month period, and the officer’s options vest one third at grant, one third after the first year and one third after the second year. The Black Scholes value of these options was $706,250 which is being amortized over the respective vesting periods. The following assumptions were used for the Black Scholes calculation to determine this expense:
Estimated fair value of underlying common stock |  |  | $0.35 - $0.38 |
Remaining life |  |  | 5.0 |
Risk-free interest rate |  |  | 0.69% - 0.80% |
Expected volatility |  |  | 80% - 89% |
Dividend yield |  |  | – |
During 2011, the Company issued options to purchase 2,800,000 shares of common stock in connection with employment agreements and canceled 1,550,000 options granted to certain directors. The Black Scholes value of these options was $910,000 which is being amortized over the respective vesting periods and $303,333 was recorded as an expense in 2011. These options have a life of five years and a strike price of $0.54 per share, which was the closing stock price for the Company’s common stock on the date of issuance. During 2011, the Company modified the strike price on 3,310,000 options that had been outstanding for one and a half years. The effect of these modifications was to reduce the strike price from a range of $2.00 to $3.50 to $0.54 per share, which was the closing stock price for the Company’s common stock on the date of this modification. The Black Scholes value of these options was $1,075,750 which is being amortized over the respective vesting periods and $1,075,750 was recorded as an expense in 2011. The following assumptions were used for the Black Scholes calculations to determine these expenses:
Estimated fair value of underlying common stock | $0.54 |
Remaining life |  |  | 5.0 |
Risk-free interest rate |  |  | 0.83% |
Expected volatility |  |  | 100% |
Dividend yield |  |  | – |
Stock Options - Activity | The following table sets forth the activity of our stock options to purchase common stock:
|  |  | Options Outstanding |  |  | Options Exercisable |
|  |  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Average |  |  | Weighted |  |  |  |  |  |  | Average |  |  | Weighted |
|  |  |  |  |  |  | Range of |  |  | Remaining |  |  | Average |  |  |  |  |  |  | Remaining |  |  | Average |
|  |  | Options |  |  | Exercise |  |  | Life in |  |  | Exercise |  |  | Options |  |  | Life in |  |  | Exercise |
|  |  | Outstanding |  |  | Prices |  |  | Years |  |  | Price |  |  | Exercisable |  |  | Years |  |  | Price |
As of December 31, 2010 |  |  |  | 10,269,852 |  |  |  | $0.54 - $0.84 |  |  |  | 2.4 |  |  | $ | 0.94 |  |  |  | 8,512,684 |  |  |  | 2.0 |  |  | $ | 0.94 |
Cancelled |  |  |  | (3,110,000 | ) |  |  | – |  |  |  | – |  |  |  | – |  |  |  | (3,110,000 | ) |  |  | – |  |  |  | – |
Exercised |  |  |  |  |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Granted |  |  |  | 5,010,000 |  |  |  | $0.54 |  |  |  | 5.0 |  |  | $ | 0.54 |  |  |  | 3,355,000 |  |  |  | 5.0 |  |  | $ | 0.54 |
As of December 31, 2011 |  |  |  | 12,169,852 |  |  |  | $0.54 - $0.84 |  |  |  | 3.2 |  |  | $ | 0.49 |  |  |  | 8,757,684 |  |  |  | 3.2 |  |  | $ | 0.40 |
Cancelled |  |  |  | (7,276,329 | ) |  |  | – |  |  |  | – |  |  |  | – |  |  |  | (4,660,994 | ) |  |  | – |  |  |  | – |
Exercised |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Granted |  |  |  | 3,050,000 |  |  |  | $0.35 - $0.38 |  |  |  | 4.5 |  |  | $ | 0.36 |  |  |  | 1,634,333 |  |  |  | 4.5 |  |  | $ | 0.36 |
As of December 31, 2012 |  |  |  | 7,943,523 |  |  |  | $0.35 -$0.84 |  |  |  | 3.3 |  |  | $ | 0.46 |  |  |  | 5,731,023 |  |  |  | 2.9 |  |  | $ | 0.48 |
Warrants -Assumptions | The following assumptions were used for the Black Scholes calculation to determine this expense:
Estimated fair value of underlying common stock |  |  | $0.38 - $0.75 |
Remaining life |  |  | 5.0 |
Risk-free interest rate |  |  | 0.74% - 1.80% |
Expected volatility |  |  | 84% - 132% |
Dividend yield |  |  | – |
Calculations of the ratchet-down impact | Calculations of the ratchet-down impact:
|  |  | Original |  | After Ratchet Down |
|  | Shares x |  |  | Strike = |  |  | Aggregate Exercise Price |  |  | Shares x |  |  | Strike = |  |  | Aggregate Exercise Price |
Series A warrants |  |  | 21,750,000 |  |  | $ | 0.65 |  |  | $ | 14,137,500 |  |  |  | 47,125,000 |  |  | $ | 0.30 |  |  | $ | 14,137,500 |
Series B warrants |  |  | 10,875,000 |  |  | $ | 1.00 |  |  | $ | 10,875,000 |  |  |  | 36,250,000 |  |  | $ | 0.30 |  |  | $ | 10,875,000 |
Placement agent warrant |  |  | 3,600,000 |  |  | $ | 0.65 |  |  | $ | 2,340,000 |  |  |  | 7,800,000 |  |  | $ | 0.30 |  |  | $ | 2,340,000 |
Broker-dealer warrant |  |  | 1,000,000 |  |  | $ | 0.65 |  |  | $ | 650,000 |  |  |  | 2,166,667 |  |  | $ | 0.30 |  |  | $ | 650,000 |
Advisory warrant |  |  | 750,000 |  |  | $ | 0.65 |  |  | $ | 487,500 |  |  |  | 1,625,000 |  |  | $ | 0.30 |  |  | $ | 487,500 |
|  |  | 37,975,000 |  |  |  |  |  |  |  |  |  |  |  | 94,966,667 |  |  |  |  |  |  |  |  |
Additional warrants from ratchet-down |  |  |  |  | 56,991,667 |  |  |  |  |  |  |  |  |
Warrants - Summary | A summary of the warrants:
|  |  | Warrants Outstanding |  |  | Warrants Exercisable |
|  |  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Average |  |  | Weighted |  |  |  |  |  |  | Average |  |  | Weighted |
|  |  |  |  |  |  | Range of |  |  | Remaining |  |  | Average |  |  |  |  |  |  | Remaining |  |  | Average |
|  |  | Warrants |  |  | Exercise |  |  | Life in |  |  | Exercise |  |  | Warrants |  |  | Life in |  |  | Exercise |
|  |  | Outstanding |  |  | Prices |  |  | Years |  |  | Price |  |  | Exercisable |  |  | Years |  |  | Price |
As of December 31, 2010 |  |  |  | 2,472,676 |  |  |  | $1.00 - $2.00 |  |  |  | 4.4 |  |  | $ | 1.37 |  |  |  | 2,472,676 |  |  |  | 4.4 |  |  | $ | 1.37 |
Exercised |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Granted |  |  |  | 57,057,569 |  |  |  | $0.65 - $1.00 |  |  |  | 4.5 |  |  | $ | 0.75 |  |  |  | 57,057,569 |  |  |  | 4.5 |  |  | $ | 0.75 |
As of December 31, 2011 |  |  |  | 59,530,245 |  |  |  | $0.65 - $2.00 |  |  |  | 3.5 |  |  | $ | 2.00 |  |  |  | 59,530,245 |  |  |  | 3.5 |  |  | $ | 2.00 |
Exercised |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Ratchet-down impact |  |  |  | 56,991,667 |  |  |  | $0.30 |  |  |  | – |  |  | $ | 0.30 |  |  |  | 56,991,667 |  |  |  | – |  |  | $ | 0.30 |
Granted |  |  |  | 15,763,330 |  |  |  | $0.30 - $0.75 |  |  |  | 4.6 |  |  | $ | 0.38 |  |  |  | 10,388,330 |  |  |  | 4.6 |  |  |  | - |
As of December 31, 2012 |  |  |  | 132,285,242 |  |  |  | $0.30 - $2.00 |  |  |  | 3.5 |  |  | $ | 0.40 |  |  |  | 126,910,242 |  |  |  | 3.5 |  |  | $ | 0.38 |

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