NOTE 15 – STOCK-BASED COMPENSATION PLAN AND WARRANTS

The Company’s Incentive Compensation Plan (the “Plan”), which was last amended and restated with shareholder approval in December 2012, provides for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units and cash incentive awards.

A summary of the status of stock options under the Plan as of September 30, 2014 and December 31, 2013 is as follows:

	9/30/2014					12/31/2013
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of year		9,583,762		$	1.16		7,728,877		$	1.01
Granted		2,372,800		$	0.58		2,176,535		$	1.67
Exercised		-		$	-		(293,650	)	$	0.98
Expired and Cancelled		(922,887	)	$	0.99		(28,000	)	$	2.18
		11,033,675					9,583,762

Outstanding, end of period		11,033,675		$	1.05		9,583,762		$	1.16


Exercisable at end of period		10,372,100		$	1.09		9,536,262		$	1.17

During the nine months ended September 30, 2014 the Company granted 2,372,800 options valued at $912,994. Stock-based compensation expense for the three and nine months ended September 30, 2014 was $377,731 and $992,450, respectively. As of September 30, 2014, the unrecognized compensation cost related to all non-vested share-based compensation arrangements granted under the Plan was $3,366 and will be recognized in the fourth quarter of 2014.

During the nine months ended September 30, 2013, the Company granted 2,176,535 options valued at $2,270,121. Stock-based compensation expense for the three and nine months ended September 30, 2013 was $753,299 and $2,199,104, respectively.

During the nine months ended September 30, 2014, there were no stock options exercised either for cash or on a cashless basis.

During the nine months ended September 30, 2013, two former employees exercised 91,400 stock options and the Company received proceeds of $77,734. Also, during the nine months ended September 30, 2013, the Company issued 100,528 shares of common stock on the cashless exercise of 202,250 stock options.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model. This model uses the assumptions listed in the table below for stock options granted in 2014. Expected volatilities are based on the historical volatility of the Company’s stock. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

		9/30/2014
Weighted average fair value per option granted		$0.3130 - $0.4968
Risk-free interest rate		.086 - 1.75%
Expected dividend yield		0.00%
Expected lives		2.688
Expected volatility		82.11 - 98.91%

Stock options outstanding at September 30, 2014 are as follows:

Range of Exercise Prices		Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options Exercisable
$	0.01-$1.50		8,716,807		2.1	$	0.73		8,055,232
$	1.51-$3.00		2,191,868		3.0	$	1.67		2,191,868
$	3.01-$5.00		125,000		3.1	$	3.11		125,000
			11,033,675		2.3	$	1.06		10,372,100

Warrants

As of September 30, 2014, the Company has warrants outstanding to purchase 16,446,351 shares of the Company’s common stock, at prices ranging from $0.01 to $1.50 per share. These warrants expire at various dates through November 2018. The summary of the status of the warrants issued by the Company as of September 30, 2014 and December 31, 2013 are as follows:

	9/30/2014					12/31/2013
	Number of Warrants			Weighted Average Exercise Price		Number of Warrants			Weighted Average Exercise Price
Outstanding at beginning of year		16,688,265		$	1.44		23,392,811		$	1.46
Granted		-		$	-		4,010,295		$	1.18
Exercised		-		$	-		(2,287,730	)	$	1.28
Cashless Exercises		-		$	-		(8,082,535	)	$	1.43
Expired and Cancelled		(241,914	)	$	0.87		(344,576	)	$	0.88
		16,446,351					16,688,265

Outstanding, end of period		16,446,351		$	1.44		16,688,265		$	1.44

Exercisable at end of period		16,446,351		$	1.44		16,688,265		$	1.44

There were no warrants granted during the nine months ended September 30, 2014. Also during this period there were no warrants exercised either for cash or on a cashless basis.

For the nine months ended September 30, 2013, there were 4,010,295 warrants granted to investors.

Warrant exercises into common stock for the nine months ended September 30, 2013 are discussed in Note 13 above.