Shareholders' Equity, Mandatorily Redeemable Convertible Preferred Stock, Options and Warrants

12 Months Ended

Dec. 31, 2014

Equity [Abstract]

Shareholders' Equity, Mandatorily Redeemable Convertible Preferred Stock, Options and Warrants

NOTE 9 – SHAREHOLDERS’ EQUITY, REDEEMABLE CONVERTIBLE PREFERRED STOCK, OPTIONS AND WARRANTS

Warrants

As disclosed in Note 7, on July 27, 2012, the Company entered into a securities purchase agreement with certain institutional and private investors. Each investor also received a common stock purchase warrant to purchase such number of shares of our common stock equal to twenty-five percent (25%) of the number of shares of common stock that the note purchased by such investor may be convertible into on the closing date. The total possible number of warrants to be issued is 4,502,520. The warrants are immediately exercisable at a price of $0.30 per share and have a term of five years. The fair value of the warrants, determined using the Black-Scholes Option Pricing Model, was calculated using the following assumptions: risk-free rate of .650%, expected dividend yield of 0%, expected volatility of 88%, and an expected life of 5 years.

On September 3, 2013, in an effort to raise capital to support its ongoing planned uranium de-conversion project, the Company authorized an offer to its current warrant holders to encourage them to exercise outstanding warrants. The offer gave warrant holders two options. The first option allowed holders of the Company’s outstanding warrants to exchange one warrant for one share of the Company’s common stock at a discounted warrant exercise price of $0.09 per share until close of business on October 4, 2013. The second option allowed holders of the Company’s outstanding warrants to exchange two Class H or K Warrants, or four Class F or I Warrants, for one share of the Company’s common stock at a discounted price of $0.06 per share. The Company discounted the exercise price of (i) its Class F Warrants which were issued on November 7, 2008, from $0.30 to $0.09 under Option 1, and to $0.06 under Option 2, (ii) its Class H Warrants, which were issued August 24, 2011, from $0.22 to $0.09 under Option 1, and to $0.06 under Option 2, (iii) its Class I Warrants, which were issued on October 29, 2010, from $0.40 to $0.09 under Option 1, and to $0.06 under Option 2, and (iv) its Class K Warrants, which were issued on July 27, 2012, from $0.30 to $0.09 under Option 1 and to $0.06 under Option 2. In addition to the reduced exercise price, Class K Warrant holders could also apply the accrued interest on their outstanding convertible subordinated notes, due to be paid on September 30, 2013, towards the cash exercise price of either option. As a result of this offer, 557,021 warrants were exercised under Option 1 and the company issued 557,021 shares of its common stock for proceeds of $50,132. $46,193 of these proceeds was applied to outstanding interest. Under Option 2, 17,244,331 warrants were exercised and the Company issued 6,170,951 shares of its common stock for proceeds of $370,257. $64,540 of these proceeds was applied to outstanding interest. In total, as a result of this offer, 17,801,352 warrants were exercised and Company issued 6,727,972 shares of its common stock for proceeds of $420,389, and $110,733 of the proceeds was applied to outstanding interest. In September 2013, the 3,000,000 remaining Class F Warrants expired.

The following table summarizes warrant activity for the years ended December 31, 2014 and 2013:

Warrants	Outstanding Shares	Weighted Average Exercise Price
Outstanding at December 31, 2012	38,059,303	$	0.26
Granted	10,000,000		0.06
Exercised	(17,801,352)		0.06
Forfeited	(3,000,000)		0.30
Outstanding at December 31, 2013	27,257,951		0.26
Granted	15,000,000		0.06
Exercised	-		-
Forfeited	-		-
Outstanding at December 31, 2014	42,257,951	$	0.18

Mandatorily Redeemable Convertible Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred stock, par value $0.01 per share. The Board of Directors is authorized to set the distinguishing characteristics of each series prior to issuance, including the granting of limited or full voting rights, rights to the payment of dividends and amounts payable in event of liquidation, dissolution or winding up of the Company.

At December 31, 2014, there were 850 shares of the Series B Preferred Stock outstanding with a mandatory redemption date of May 2022 at $1,000 per share or $850,000. The shares are also convertible into common stock at a conversion price of $2.00 per share. These preferred shares carry no dividend preferences. Due to the mandatory redemption provision, the Series B Preferred Stock has been classified as a liability in the accompanying balance sheets.

Employee Stock Purchase Plan

In September 2004, the Company’s Board of Directors (the “Board”) approved an employee stock purchase plan for an aggregate of up to 2,000,000 shares of the Company’s common stock. The plan allows employees to deduct up to 15% of their payroll each pay period to be used for the purchase of common stock at a discounted rate. The common shares will be purchased at the end of each three-month offering period or other period as determined by the Board. The Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

During 2014 and 2013, the Company issued 196,872 and 93,970 shares of common stock to employees for proceeds of $8,417 and $10,560, respectively, in accordance with the employee stock purchase plan.

Subsequent to December 31, 2014, the Company issued 60,715 shares of common stock for proceeds of $1,548 under this employee stock purchase plan.

2006 Equity Incentive Plan

In April 2006, the Company adopted the International Isotopes Inc. 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan was approved by shareholders in July 2006. The 2006 Plan replaced the Company’s 2002 Long-Term Incentive Plan (the “Prior Plan”). The 2006 Plan permits the granting of any or all of the following types of awards: (1) incentive and nonqualified stock options, (2) stock appreciation rights, (3) stock awards, restricted stock and stock units, (4) performance shares and performance units conditioned upon meeting performance criteria, and (5) other stock- or cash-based awards.

The 2006 Plan authorizes the issuance of up to 20,000,000 shares of common stock, plus 1,350,000 shares issued but not subject to outstanding awards under the Prior Plan. There are also 13,000,000 shares granted and outstanding under the Prior Plan that could become available for issuance under the 2006 Plan (for example, if they are forfeited or otherwise expire or terminate without the issuance of shares). Unless earlier terminated, the 2006 Plan will terminate on July 12, 2016. At December 31, 2014, there were 466,350 shares available for issuance under this plan.

Non-Vested Stock Grants

There were no non-vested stock awards outstanding during the year ended December 31, 2014. Non-vested stock awards outstanding at December 31, 2013 and changes during the same year were as follows:

Non-vested Stock Awards	2013		Weighted average grant date fair value
Balance at beginning of year	$	151,720	$	0.18
Granted		-		-
Vested		(151,750)		0.18
Forfeited		-
Non-vested shares at end of year	$	-

The intrinsic value of stock awards vested during the years ended December 31 2013 was $0. During the year ended December 31, 2013 the Company recognized $283 of compensation expense.

Pursuant to an employment agreement, the Company issued 167,860 in fully vested shares of Company stock in February 2014, under the 2006 Equity Incentive Plan to a member of Company management. The number of shares awarded was based on a $28,000 stock award using a price of $0.10 per share. The agreement states that the number of shares issued will be based on the average closing price of common stock for the 20 trading days prior to the issue date but not less than $0.10 per share. Compensation expense recorded pursuant to this stock grant was $10,072, which was determined by multiplying the number of shares awarded by the closing price of commons stock on February 27, 2014, which was $0.06 per share. 112,140 shares were retained in a cashless exercise by the Company to satisfy the employee’s payroll tax liabilities. The net shares issued on February 27, 2014 totaled 167,860 shares.

Pursuant to the employment agreement noted above, the Company issued 175,000 in fully vested shares of Company stock in February 2013 under the 2006 Equity Incentive Plan to a member of Company management. The number of shares issued was calculated using the average closing price of common stock for the 20 trading days prior to the issue date. 70,088 shares were retained in a cashless exercise by the Company to satisfy the employee’s payroll tax liabilities. The net shares issued on February 28, 2013 totaled 104,912 shares.

In January 2013, the Company issued 750,000 nonqualified stock options to certain consultants under the 2006 Plan. The options have an exercise price of $0.15 per share and vest 25% on the first anniversary of the grant date with 25% vesting after each additional one-year period of continuous service. In November 2013, these options were re-priced to an exercise price of $0.07 per share. The options expire 10 years from the date of grant. The options had a fair value of $100,923 or $0.135 per share as estimated on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions: risk-free interest rate of 1.87%, expected dividend yield rate of 0%, expected volatility of 84.62%, and an expected life of 10 years.

Pursuant to a Board resolution on January 10, 2013, the Company re-priced 600,000 options which had an original exercise price of $0.32 per share and expire on May 4, 2019. The stock options were adjusted to an exercise price of $0.15 per share with the expiration date remaining May 4, 2019. The option re-price had a fair value of $11,145 as estimated on the date of re-pricing using the Black-Scholes options pricing model with the following weighted-average assumptions: risk free interest rate of 1.26%, expected dividend yield rate of 0%, expected volatility of 84.20%, and an expected life of 6.29 years.

In April 2013, 2,000,000 nonqualified stock options were exercised under a partial cashless exercise. The Company received proceeds of $30,000 and issued 1,793,104 shares of common stock.

Pursuant to a Board resolution on November 11, 2013, the Company re-priced 11,850,000 options which had previous exercise prices between $0.15 and $0.70 per share and expire between October 31, 2017 and January 18, 2023. The stock options were adjusted to an exercise price of $0.07 per share with the expiration dates remaining unchanged. An additional $156,499 of compensation expense was recognized in the current period and $15,175 will be recognized in future periods. The option re-price had a fair value of $171,674 as estimated on the date of re-pricing using the Black-Scholes options pricing model with the following weighted-average assumptions: risk free interest rate of 1.47%, expected dividend yield rate of 0%, expected volatility of 78.68%, and an expected life between 3.97 and 9.19 years.

On October 27, 2014, the Compensation Committee of the Company’s Board of Directors approved the re-pricing of an aggregate of 14,500,000 outstanding stock options held by executive officers and members of the Board, which had original exercise prices of either $0.07 or $0.08 per share. The Compensation Committee lowered the exercise price per share to $0.035 for each option, which was the fair market value of the Company’s stock on October 27, 2014. The expiration dates remaining unchanged. An additional $99,068 of compensation expense was recognized in the current period and $2,694 will be recognized in future periods. The option re-price had a fair value of $102,322 as estimated on the date of re-pricing using the Black-Scholes options pricing model with the following weighted-average assumptions: risk free interest rate of between 0.41% and 1.94%, expected dividend yield rate of 0%, expected volatility between 51.49% and 79.32%, and an expected life between 1.80 and 7.93 years.

In addition, on October 27, 2014, the Compensation Committee granted an aggregate of 8,100,000 incentive stock options to executive officers and employees with an exercise price of $0.035 per share. Also, the Compensation Committee granted 400,000 nonqualified stock options to consultants and 3,000,000 nonqualified stock options to members of the Board. All of the stock options were granted with an exercise price of $0.035 per share, vest one third immediately, one third in one year, and one third in two years, and expire on October 27, 2024. The options had a fair value of $206,670 as estimated on the date of issue using the Black-Scholes options pricing model with the following weighted-average assumptions: risk free interest rate of 1.51%, expected dividend yield rate of 0%, expected volatility of 74.68%, and an expected life between 5.00 and 5.80 years.

Stock Options

A summary of the stock options issued under the Company’s 2006 Plan is as follows:

	Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at December 31, 2012	17,700,000	$	0.23
Granted	750,000		0.15
Exercised	(2,000,000)		0.03
Forfeited	-		-
Outstanding at December 31, 2013	16,450,000		0.09
Granted	11,500,000		0.04
Exercised	-
Forfeited	-
Outstanding at December 31, 2014	27,950,000	$	0.05	6.5		-
Exercisable at December 31, 2014	18,720,833	$	0.06	5.0		-

The total intrinsic value of stock options exercised in 2014 and 2013 was $0.

The total intrinsic value of stock options outstanding at December 31, 2014 was $0. The intrinsic value for stock options outstanding is calculated as the amount by which the quoted price of $0.03 of our common stock as of the end of 2014 exceeds the exercise price of the options.

The Company recognized $234,635 and $331,437 of compensation expense related to these options for the years ended December 31, 2014 and 2013, respectively.

All options exercised were issued under a qualified plan and accordingly, there is no income tax effect in the accompanying financial statements.