7.	STOCK BASED COMPENSATION

Options to directors, officers and employees

The Company maintains, as adopted by the board of directors, the 2013 Incentive Stock Plan, the 2012 Incentive Stock Plan, the 2011 Incentive Stock Plan and the 2010 Stock Incentive Plan (the plans) providing for the issuance of up to 11,000,000 options to employees, officers, directors or consultants of the Company. Incentive stock options granted under the plans may only be granted with an exercise price of not less than fair market value of the Company’s common stock on the date of grant (110% of fair market value for incentive stock options granted to principal stockholders). Non-qualified stock options granted under the plans may only be granted with an exercise price of not less than 85% of the fair market value of the Company’s common stock on the date of grant. Awards under the plans may be either vested or unvested options. The unvested options vest ratably over two years for options with a five or three year term and after one year for options with a two year term.

In addition to the plans, the Company has granted, on various dates, stock options to directors, officers and employees to purchase common stock of the Company. The terms, exercise prices and vesting of these awards vary.

The following table summarizes option activity for directors, officers and employees:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Exercise Term in Months
Outstanding at December 31, 2010		4,940,000		$	0.56	$	0.33		77
Exercisable at December 31, 2010		1,854,625		$	0.53	$	0.32		75
Granted		3,425,000			0.63		0.28		54
Exercised		(29,750	)		0.41		0.26		40
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2011		8,335,250		$	0.59	$	0.31		58
Exercisable at December 31, 2011		4,588,875		$	0.57	$	0.31		60
Granted		2,025,000			0.13		0.05		40
Exercised		-			-		-		-
Forfeited		(1,315,375	)		0.61		0.27		40
Expired		(1,314,375	)		0.55		0.29		51
Outstanding at December 31, 2012		7,730,500		$	0.48	$	0.25		44
Exercisable at December 31, 2012		6,080,000		$	0.54	$	0.29		46
Granted		2,100,000			0.29		0.12		45
Exercised		(21,126	)		0.11		0.04		29
Forfeited		-			-		-		-
Expired		(505,000	)		0.70		0.20		-
Outstanding at December 31, 2013		9,304,374		$	0.44	$	0.23		39
Exercisable at December 31, 2013		6,670,937		$	0.51	$	0.27		38
Granted
Exercised
Forfeited
Expired
Outstanding at June 30, 2014		9,304,374		$	0.44	$	0.23		39
Exercisable at June 30, 2014		6,670,937		$	0.51	$	0.27		38

The Company recorded $ 68,238, $421,281, $325,673 and $ 2,276,379 compensation expense for stock options to directors, officers and employees for the six months ended June 30, 2014, 2013, 2012 and the period from inception (February 20, 2007) to June 30, 2014, respectively. As of June 30, 2014, unrecognized compensation expense of $452,755 is related to non-vested options granted to directors, officers and employees which is anticipated to be recognized over the next 30 months, commensurate with the vesting schedules.

Options to consultants

The Company has also granted, on various dates, stock options to purchase common stock of the Company to consultants for services previously provided to the Company. The terms, exercise prices and vesting of these awards vary.

The following table summarizes option activity for consultants:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Exercise Term in Months
Outstanding at December 31, 2010		810,000		$	0.67	$	0.23		32
Exercisable at December 31, 2010		380,000		$	0.63	$	0.22		31
Granted		70,000			0.59		0.18		31
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2011		880,000		$	0.66	$	0.23		20
Exercisable at December 31, 2011		755,000		$	0.64	$	0.22		20
Granted		150,000			0.11		0.04		36
Exercised		-			-		-		-
Forfeited		(30,000	)		0.76		0.25		9
Expired		(340,000	)		0.83		0.28		8
Outstanding at December 31, 2012		660,000		$	0.45	$	0.15		14
Exercisable at December 31, 2012		561,000		$	0.50	$	0.17		10
Granted		400,000			0.21		0.10		57
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		(810,000	)		0.67		0.23		-
Outstanding at December 31, 2013		250,000		$	0.35	$	0.13		23
Exercisable at December 31, 2013		102,000		$	0.39	$	0.15		17
Granted
Exercised
Forfeited
Expired
Outstanding at June 30, 2014		250,000		$	0.55	$	0.22		14
Exercisable at June 30, 2014		102,000		$	0.55	$	0.22		17

The Company recorded $13,474, $68,747, $ (70,171) and $178,215 compensation expense for stock options to consultants for the six months ended June 30, 2014, 2013, 2012 and for the period from inception (February 20, 2007) to June 30, 2014, respectively. As of June 30, 2014, unrecognized compensation expense of $56,728 is related to non-vested options granted to consultants which is anticipated to be recognized over the next 14 months, commensurate with the vesting schedules.

Warrants to accredited investors

From December 2010 through December 2011, common stock sold by the Company included common stock purchase warrants to acquire shares of common stock of the Company. For each ten shares sold, each investor received a warrant to purchase five shares of common stock for a period of two years at an exercise price of $0.80 per share. In November 2012, the purchase warrants were modified to change the exercise period from two years to three years. The $112 cost of this modification is included in stock based compensation expense for the year ended December 31, 2012.

From January 2012 through August 2012, the 2012 Investors received 2012 Warrants to acquire common stock of the Company. The 2012 Warrants are exercisable for three years at an exercise price of $0.50. In November 2012, the Company entered into a Note and Warrant Amendment and Conversion Agreement whereby the holders and the 2012 Investors converted all principal and interest under the 2012 Notes into shares of common stock. Further, the exercise price of the 2012 Warrants was reduced to $0.25 per share. The $20,795 cost of the reduction in the exercise price for accredited investors is included in stock based compensation expense for the year ended December 31, 2012.

From January 2013 through May 2013, investors received warrants to acquire common stock of the Company that are exercisable for three years at an exercise price of $0.40.

During June 2013, investors received warrants to acquire common stock of the Company that are exercisable for three years at an exercise price of $0.64.

The above securities were offered and sold to the investors in private placement transactions made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

The following table summarizes warrant activity for accredited investors:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Exercise Term in Months
Outstanding at December 31, 2010		785,001		$	0.80	$	0.11		24
Exercisable at December 31, 2010		785,001		$	0.80	$	0.11		24
Granted		4,956,224			0.80		0.11		24
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2011		5,741,225		$	0.80	$	0.11		17
Exercisable at December 31, 2011		5,741,225		$	0.80	$	0.11		17
Granted		1,450,000			0.50		0.06		36
Modified warrants prior to modifications		(7,191,225	)		0.74		0.10		10
Modified warrants after modifications		7,191,225			0.69		0.10		20
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2012		7,191,225		$	0.69	$	0.10		19
Exercisable at December 31, 2012		7,191,225		$	0.69	$	0.10		19
Granted		10,954,063			0.40		0.05		28
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		(1,901,666	)		0.76		0.13		-
Outstanding at December 31, 2013		16,243,622		$	0.52	$	0.07		22
Exercisable at December 31, 2013		16,243,622		$	0.52	$	0.07		22
Granted		29,711,500			0.15		0.02		34
Exercised
Forfeited
Expired		(4,164,547	)		0.80		0.11
Outstanding at June 30, 2014		41,790,575		$	0.31	$	0.05		22
Exercisable at June 30, 2014		41,790,575		$	0.31	$	0.05		22

The Company recorded $669,402, $902,342, $20,907 and $2,225,825 compensation expense for stock warrants to accredited investors for the six months ended June 30, 2014, 2013,2012 and for the period from inception (February 20, 2007) to June 30, 2014, respectively. There is no unrecognized compensation expense for these warrants because they are fully vested at date of grant.

Warrants to placement agent and consultants

Through December 2011, the Company compensated the placement agent for assisting in the sale of the Company’s securities by paying the placement agent commissions and issuing the placement agent common stock purchase warrants to purchase shares of the Company’s common stock. The warrants have a five year term and various exercise prices.

The Company has also granted, on various dates, stock warrants to purchase common stock of the Company to consultants for services previously provided to the Company. The terms, exercise prices and vesting of these awards vary.

The following table summarizes warrant activity for the placement agent and consultants:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Exercise Term in Months
Outstanding at December 31, 2010		3,717,984		$	0.60	$	0.21		52
Exercisable at December 31, 2010		2,617,984		$	0.61	$	0.19		51
Granted		887,910			0.60		0.27		60
Exercised		(44,638	)		0.40		0.18		39
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2011		4,561,256		$	0.60	$	0.22		43
Exercisable at December 31, 2011		4,081,256		$	0.59	$	0.21		42
Granted		28,334			0.60		0.24		60
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2012		4,589,590		$	0.60	$	0.22		31
Exercisable at December 31, 2012		4,339,590		$	0.59	$	0.21		31
Granted		-			-		-		-
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2013		4,589,590		$	0.60	$	0.22		22
Exercisable at December 31, 2013		4,339,590		$	0.60	$	0.22		22
Granted
Exercised
Forfeited
Expired
Outstanding at June 30, 2014		4,589,590		$	0.60	$	0.22		22
Exercisable at June 30, 2014		4,339,590		$	0.60	$	0.22		22

The Company recorded $0, $0, $64,936 and $936,340 compensation expense for stock warrants to the placement agent and consultants for the six months ended June 30, 2014, 2013, 2012 and for the period from inception (February 20, 2007) to June 30, 2014, respectively. There is no unrecognized compensation expense for the placement agent warrants because they are fully vested at date of grant.

Warrants to directors and officers

In December 2010 and May 2011, the Company issued to certain directors and officers common stock purchase warrants to acquire shares of common stock at an exercise price of $2.00 per share for a period of five years. In November 2011, under the terms of a Promissory Note issued to a director and officer, common stock purchase warrants were issued to acquire 100,000 shares of common stock at an exercise price of $0.50 per share for a period of one year. In May 2012, a director and officer received 100,000 2012 Warrants to acquire common stock of the Company at an exercise price of $0.50 for a period of three years. In June 2012, a director and officer converted secured and unsecured loans provided to the Company from September 2011 to June 2012 in the aggregate amount of $389,250 into 2012 Notes and 2012 Warrants. In November 2012, the Company entered into a Note and Warrant Amendment and Conversion Agreement whereby the holders and 2012 Investors converted all principal and interest under the 2012 Notes into shares of common stock. Further, the exercise price of the 2012 Warrants was reduced to $0.25 per share. The $7,388 cost of the reduction in the exercise price is included in stock based compensation expense for the year ended December 31, 2012.

The following table summarizes warrant activity for directors and officers:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Exercise Term in Months
Outstanding at December 31, 2010		1,400,000		$	2.00	$	0.13		59
Exercisable at December 31, 2010		1,400,000		$	2.00	$	0.13		59
Granted		1,600,000			1.91		0.09		57
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		-			-		-		-
Outstanding at December 31, 2011		3,000,000		$	1.95	$	0.11		49
Exercisable at December 31, 2011		3,000,000		$	1.95	$	0.11		49
Granted		489,250			0.50		0.01		36
Modified warrants prior to modifications		(489,250	)		0.50		0.01		31
Modified warrants after modifications		489,250			0.25		0.01		31
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		(100,000	)		0.50		0.10		-
Outstanding at December 31, 2012		3,389,250		$	1.75	$	0.09		37
Exercisable at December 31, 2012		3,389,250		$	1.75	$	0.09		37
Granted		-			-		-		-
Exercised		-			-		-		-
Forfeited		-			-		-		-
Expired		(100,000	)		0.50		0.10		-
Outstanding at December 31, 2013		3,289,250		$	1.75	$	0.09		28
Exercisable at December 31, 2013		3,289,250		$	1.75	$	0.09		28
Granted
Exercised
Forfeited
Expired
Outstanding at June 30, 2014		3,289,250		$	1.75	$	0.09		28
Exercisable at June 30, 2014		3,289,250		$	1.75	$	0.09		28

The Company recorded $0, $0, $(2,492) and $323,188 compensation expense for stock warrants to directors and officers for the six months ended June 30, 2014, 2013 and for the period from inception (February 20, 2007) to June 30, 2014, respectively. There is no unrecognized compensation expense for these warrants because they are fully vested at date of grant.