NOTE 15 – STOCK OPTION PLAN AND WARRANTS

STOCK OPTION PLAN

The Company’s Incentive Compensation Plan (the “Plan”) provides for the issuance of qualified options to all employees and non-qualified options to directors, consultants and other service providers.

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

	12/31/2014					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		11,033,675		$	1.05		9,536,262		$	1.17

At December 31, 2014 the aggregate intrinsic value of all outstanding options was $0 of which 11,033,675 outstanding options are currently exercisable at a weighted average exercise price of $1.05 and a weighted average remaining contractual term of 2.3 years.

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.

	12/31/2014		12/31/2013
Weighted average fair value per option granted	$	0.31 - $0.50	$	1.04
Risk-free interest rate		.86 - 1.75%		0.65 - 0.81%
Expected dividend yield		0.00%		0.00%
Expected lives		2.6875		2.695
Expected volatility		82.11 - 98.91%		99.79 - 108%

During 2014 the Company granted 2,372,800 options to employees and advisors and recognized a total $935,097 in stock compensation expense. For fiscal 2013 the Company granted 2,176,535 options to employees and recognized a total of $2,318,355 in stock compensation expense. The options granted to employees are 25% vested on the date of grant and 25% every 90, 180 and 270 days subsequent to the grant date. The expiration date of the options granted in both 2014 and 2013 is five years from the grant date.

During the year ended December 31, 2014, there were no stock options exercised for cash or on a cashless basis. For the twelve months ended December 31, 2013, 91,400 stock options were exercised for cash while the Company issued 100,528 shares of common stock on the cashless exercise of stock options.

As of December 31, 2014, the Company had reserved 6,966,325 shares of common stock to be issued upon the exercise of qualified options issued under the Plan. As of December 31, 2013 the Company had 8,416,238 shares available for grant under the Plan.

Stock options outstanding at December 31, 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		8,716,807
$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	$	1.05		11,033,675

Stock options outstanding at December 31, 2013 are as follows:

Range of Exercise Prices	Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options Exercisable
$0.01-$1.50		7,090,227		2.8	$	0.97		7,090,227
$1.51-$3.00		2,368,535		4.5	$	1.67		2,321,035
$3.01-$5.00		125,000		4.6	$	3.11		125,000
		9,583,762		3.3	$	1.17		9,536,262

WARRANTS

During the year ended December 31, 2014, there were no warrants exercised for cash or on a cashless basis. For the twelve months ended December 31, 2013, there were 2,287,730 stock warrants were exercised for cash and the Company issued 3,606,157 shares of common stock on the cashless exercise of warrants.

The summary of the status of the warrants issued by the Company as of December 31, 2014 and 2013 are as follows:

	12/31/2014					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

As of December 31, 2014 and 2013, the Company had warrants outstanding to purchase 16,446,351 and 16,688,265 shares of the Company’s common stock, respectively, at prices ranging from $0.71 to $1.50 per share. These warrants expire at various dates through November 2018.

There were no warrants granted or exercised during fiscal year 2014.

There were 4,010,295 warrants issued in 2013. As part of the August 20, 2013 transaction with Brightline Ventures I discussed above, the Company issued one additional warrant equal for every five warrants owned and not exercised as part of the Cashless Exercise Program. Thus, the Company issued an aggregate of 2,376,009 additional warrants at an exercise price of $1.25 per share (including 2,316,597 additional warrants that were issued to Brightline Ventures I) to the holders of $1.50 Warrants. On September 18, 2013, the Company entered into a private placement subscription agreement with Brightline Ventures I-C, LLC, pursuant to which it issued warrants to purchase 234,286 shares of common stock at an exercise price of $1.50 per share. Finally, On November 18, 2013, the Company completed a public offering of its common stock in which it issued warrants to purchase 1,400,000 shares of common stock at an exercise price of $1.00 per share.

On October 21, 2013, the Company issued warrants to purchase up to 30,000 shares of common stock in a private placement transaction to a business consultant who will be assisting the Company in various product placement matters as partial consideration for services being rendered. The per share exercise prices of the warrants will be determined based on the market price of the Company’s common stock if and when certain targets are met; the warrants are exercisable through October 21, 2018.