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12. STOCK OPTIONS AND WARRANTS | 12 Months Ended
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Dec. 31, 2013
Stock Options And Warrants |
NOTE 12. STOCK OPTIONS AND WARRANTS | On August 10, 2011, the Company’s Board of Directors approved and caused the Company to adopt the Envision Solar International, Inc. 2011 Stock Incentive Plan (the “Plan”), which authorizes the issuance of up to 30,000,000 shares of the Company’s common stock pursuant to the exercise of stock options or other awards granted under the Plan. In 2008, the Board approved the 2008 equity Incentive Plan, which authorizes 6,108,571 shares under the plan. Exercise rights may not expire more than three months after the date of termination of the employee but may expire in less time as stipulated in the individual grant notice. For disability or death, the optionee or estate will generally have up to twelve months to exercise their options. For certain options the Company may have rights of first refusal for a stipulated period of time, under a separate stock restriction agreement, whereby if the holder exercise the options and then desires to sell the underlying shares, the Company has the right to repurchase such shares at a price to which the holder has agreed to sell them to a third party. In 2007, the Company authorized the 2007 Unit Option Plan when the Company was a limited liability company. Options granted under this plan were exchanged one for one for options of Envision Solar International, Inc. upon conversion to a corporation from an LLC. In March 2012, the Board of Directors effectively terminated the 2007 Plan. (See Note 1) Stock Options The Company follows the provisions of ASC Topic 718, “Compensation – Stock Compensation.” ASC Topic 718 establishes standards surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, such as options issued under the Company’s Stock Option Plans. The Company’s stock option compensation expense was $435,028 and $766,732 for the years ended December 31, 2013 and 2012, respectively, and there was $410,588 of total unrecognized compensation cost related to unvested options granted under the Company’s options plans as of December 31, 2013. This stock option expense will be recognized through July 2017. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock. In February 2010, the Company entered into a letter agreement with its Chief Executive Officer, pursuant to which the Officer agreed to terminate all of his options under Envision’s 2007 Unit Option Plan and 2008 Equity Incentive Plan upon the issuance to the Officer of a new option to purchase an aggregate of 9,162,856 shares of common stock under a new plan at an exercise price of $0.33 per share which options vest immediately upon the Company’s achievement of cumulative gross revenues of either (i) $15,000,000 during the fiscal year ended December 31, 2010 or (ii) $30,000,000 prior to December 31, 2014. From January 1, 2012 through December 31, 2012, the Company issued 600,000 stock options under the plans with a total valuation of $101,632. From January 1, 2013 through December 31, 2013, the Company issued 1,000,000 stock options under the plan with a total valuation of $164,935. We used the following assumptions for options granted in fiscal 2013 and 2012:
| 2013 | 2012
Expected volatility | 128.75 -134.02% | 106.70%
Expected lives | 5 -10 Years | 3 -5.5 Years
Risk-free interest rate | 0.02% | 0.21%
Expected dividend yield | None | None
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of our stock on the open market. The expected lives for such grants were based on the simplified method for employees and directors. All options qualify as equity pursuant to ASC 815-40-25, “Contracts in Entity’s Own Equity.” Option activity for the years ended December 31, 2013 and 2012 under the 2008 and 2011 Plans is as follows:
|  |  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding at December 31, 2011 |  |  |  | 22,755,291 |  |  | $ | 0.31 |
Granted |  |  |  | 600,000 |  |  |  | 0.24 |
Exercised |  |  |  | – |  |  |  | – |
Forfeited |  |  |  | – |  |  |  | – |
Expired |  |  |  | (305,429 | ) |  |  | 0.33 |
Outstanding at December 31, 2012 |  |  |  | 23,049,862 |  |  | $ | 0.31 |
Exercisable at December 31, 2012 |  |  |  | 13,887,006 |  |  | $ | 0.29 |
Weighted average grant date fair value |  |  |  |  |  |  | $ | 0.17 |
Granted |  |  |  | 1,000,000 |  |  |  | 0.19 |
Exercised |  |  |  | – |  |  |  | – |
Forfeited |  |  |  | – |  |  |  | – |
Expired |  |  |  | – |  |  |  | – |
Outstanding at December 31, 2013 |  |  |  | 24,049,862 |  |  | $ | 0.30 |
Exercisable at December 31, 2013 |  |  |  | 14,555,583 |  |  | $ | 0.29 |
Weighted average grant date fair value |  |  |  |  |  |  | $ | 0.16 |
The following table summarizes information about employee stock options outstanding at December 31, 2013:
Options Outstanding |  | Options Exercisable
Range of Exercise Price |  | Number Outstanding at December 31, 2013 |  | Weighted Average Remaining Contractual Life |  | Weighted Average Exercise Price |  | Aggregate Intrinsic Value |  | Number Exercisable at December 31, 2013 |  | Weighted Average Exercise Price |  | Aggregate Intrinsic Value
$ | 0.165-1.31 |  | 24,049,862 |  | 6.85 Years |  | $ | 0.30 |  | $ | – |  | 14,555,583 |  | $ | 0.29 |  | $ | –
|  |  | 24,049,862 |  | 6.85 Years |  | $ | 0.30 |  | $ | – |  | 14,555,583 |  | $ | 0.29 |  | $ | –
As the Company’s stock price was lower than the weighted average exercise price at December 31, 2013, there is no aggregate intrinsic value of the options. Options exercisable have a weighted average remaining contractual life of 6.32 years as of December 31, 2013. Warrants 2013 In connection with the private placement which occurred in 2013, purchasing stockholders were entitled to receive warrants to purchase shares of the Company equal to the number of units that were purchased. Based on the number of units sold, the Company issued 6,450,667 warrants to purchase one share of common stock for each warrant. The warrants have an exercise price of $0.20 per share and expire one year from the date of issuance. Further, as a part of the Company’s private placement in 2013, the Company issued 645,067 warrants to the placement agents. These warrants, valued at $130,402, are exercisable for 5 years at an exercise price of $0.25. There was no financial statement accounting effects for the issuance of these warrants as the value has been fully charged to Additional Paid-in-Capital as an offering cost against the offering proceeds. The Company estimated the fair value of the warrants utilizing the Black-Scholes pricing model. The assumptions used in the valuation of these warrants include:
Assumptions |
Expected term | 5 yrs
Expected Volatility | 30.96%
Risk free rate | 0.14%
Dividend Yield | 0.00%
2012 In conjunction with the conversion of the Hickson convertible promissory note in March 2012 (See note 9), the Company paid a cash fee of $40,000 and an issuance of 68,966 warrants, each with a 5 year term and an exercise price of $0.29, for a total warrant valuation of $12,274 based on the Black-Scholes pricing model to Allied Beacon, the registered placement agent of the note. The assumptions used in the valuation of these warrants include:
Assumptions |
Expected term | 5 yrs
Expected Volatility | 105.82%
Risk free rate | 0.214%
Dividend Yield | 0.00%
These fees were expensed to interest at the conversion date. Jay Potter, our director, was a registered representative of Allied Beacon. (See note 14) As a part of the Company’s private placement in 2012, the Company issued 210,000 warrants to Allied Beacon, the placement agents. These warrants, valued at $30,590, are exercisable for 5 years at an exercise price of $0.275. There was no financial statement accounting effects for the issuance of these warrants as the value has been fully charged to Additional Paid-in-Capital as an offering cost against the offering proceeds. Jay Potter, our director, was a registered representative of Allied Beacon. (See note 14) Warrant activity for the years ended December 31, 2013 and 2012 are as follows:
|  |  | Number of Warrants |  |  | Weighted Average Exercise Price |
Outstanding at December 31, 2011 |  |  |  | 10,537,003 |  |  | $ | 0.46 |
Granted |  |  |  | 278,966 |  |  |  | 0.28 |
Exercised |  |  |  | – |  |  |  | – |
Forfeited |  |  |  | – |  |  |  | – |
Expired |  |  |  | (3,009,814 | ) |  |  | 0.50 |
Outstanding at December 31, 2012 |  |  |  | 7,806,155 |  |  | $ | 0.44 |
Exercisable at December 31, 2012 |  |  |  | 7,806,155 |  |  | $ | 0.44 |
Weighted average grant date fair value |  |  |  |  |  |  | $ | 0.15 |
Granted |  |  |  | 7,095,734 |  |  |  | 0.43 |
Exercised |  |  |  | – |  |  |  | – |
Forfeited |  |  |  | – |  |  |  | – |
Expired |  |  |  | (5,050,349 | ) |  |  | 0.52 |
Outstanding at December 31, 2013 |  |  |  | 9,851,540 |  |  | $ | 0.23 |
Exercisable at December 31, 2013 |  |  |  | 9,851,540 |  |  | $ | 0.23 |
Weighted average grant date fair value |  |  |  |  |  |  | $ | 0.20 |
Warrants exercisable have a weighted average remaining contractual life of 1.15 years as of December 31, 2013.

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