16. Shareholders Equity (Tables)

12 Months Ended

Dec. 31, 2012

Shareholders Equity Tables

Stock Options- Assumptions

During 2012, the Company cancelled 4,660,994 options for employees whose employment had been terminated and granted 2,300,000 options to Jerold Rubinstein, the Company’s new Chairman of the Board and CEO on June 28, 2012, pursuant to an employment contract, 450,000 options to a director and 300,000 options to an officer. These options have a strike price of $0.35 - $0.38, which were the closing prices of the Company’s common stock on the day of grant and a five-year life. Mr. Rubinstein’s options vest monthly over a twelve-month period unless the employment contract is terminated for any reason, at which time the options vest in full. The director’s options vest ratably over a 36-month period, and the officer’s options vest one third at grant, one third after the first year and one third after the second year. The Black Scholes value of these options was $706,250 which is being amortized over the respective vesting periods.  The following assumptions were used for the Black Scholes calculation to determine this expense:

Estimated fair value of underlying common stock	$0.35 - $0.38
Remaining life	5.0
Risk-free interest rate	0.69% - 0.80%
Expected volatility	80% - 89%
Dividend yield	–

During 2011, the Company issued options to purchase 2,800,000 shares of common stock in connection with employment agreements and canceled 1,550,000 options granted to certain directors.  The Black Scholes value of these options was $910,000 which is being amortized over the respective vesting periods and $303,333 was recorded as an expense in 2011.  These options have a life of five years and a strike price of $0.54 per share, which was the closing stock price for the Company’s common stock on the date of issuance.  During 2011, the Company modified the strike price on 3,310,000 options that had been outstanding for one and a half years.  The effect of these modifications was to reduce the strike price from a range of $2.00 to $3.50 to $0.54 per share, which was the closing stock price for the Company’s common stock on the date of this modification.  The Black Scholes value of these options was $1,075,750 which is being amortized over the respective vesting periods and $1,075,750 was recorded as an expense in 2011.  The following assumptions were used for the Black Scholes calculations to determine these expenses:

Estimated fair value of underlying common stock	$0.54
Remaining life	5.0
Risk-free interest rate	0.83%
Expected volatility	100%
Dividend yield	–

Stock Options - Activity

The following table sets forth the activity of our stock options to purchase common stock:

	Options Outstanding									Options Exercisable
						Weighted							Weighted
						Average		Weighted					Average		Weighted
				Range of		Remaining		Average					Remaining		Average
	Options			Exercise		Life in		Exercise		Options			Life in		Exercise
	Outstanding			Prices		Years		Price		Exercisable			Years		Price
As of December 31, 2010		10,269,852			$0.54 - $0.84		2.4	$	0.94		8,512,684			2.0	$	0.94
Cancelled		(3,110,000	)		–		–		–		(3,110,000	)		–		–
Exercised					–		–		–		–			–		–
Granted		5,010,000			$0.54		5.0	$	0.54		3,355,000			5.0	$	0.54
As of December 31, 2011		12,169,852			$0.54 - $0.84		3.2	$	0.49		8,757,684			3.2	$	0.40
Cancelled		(7,276,329	)		–		–		–		(4,660,994	)		–		–
Exercised		–			–		–		–		–			–		–
Granted		3,050,000			$0.35 - $0.38		4.5	$	0.36		1,634,333			4.5	$	0.36
As of December 31, 2012		7,943,523			$0.35 -$0.84		3.3	$	0.46		5,731,023			2.9	$	0.48

Warrants -Assumptions

The following assumptions were used for the Black Scholes calculation to determine this expense:

Estimated fair value of underlying common stock	$0.38 - $0.75
Remaining life	5.0
Risk-free interest rate	0.74% - 1.80%
Expected volatility	84% - 132%
Dividend yield	–

Calculations of the ratchet-down impact

Calculations of the ratchet-down impact:

		Original					After Ratchet Down
	Shares  x		Strike  =		Aggregate Exercise Price		Shares  x		Strike  =		Aggregate Exercise Price
Series A warrants		21,750,000	$	0.65	$	14,137,500		47,125,000	$	0.30	$	14,137,500
Series B warrants		10,875,000	$	1.00	$	10,875,000		36,250,000	$	0.30	$	10,875,000
Placement agent warrant		3,600,000	$	0.65	$	2,340,000		7,800,000	$	0.30	$	2,340,000
Broker-dealer warrant		1,000,000	$	0.65	$	650,000		2,166,667	$	0.30	$	650,000
Advisory warrant		750,000	$	0.65	$	487,500		1,625,000	$	0.30	$	487,500
		37,975,000						94,966,667
Additional warrants from ratchet-down								56,991,667

Warrants - Summary

A summary of the warrants:

	Warrants Outstanding								Warrants Exercisable
					Weighted						Weighted
					Average		Weighted				Average		Weighted
			Range of		Remaining		Average				Remaining		Average
	Warrants		Exercise		Life in		Exercise		Warrants		Life in		Exercise
	Outstanding		Prices		Years		Price		Exercisable		Years		Price
As of December 31, 2010		2,472,676		$1.00 - $2.00		4.4	$	1.37		2,472,676		4.4	$	1.37
Exercised		–		–		–		–		–		–		–
Granted		57,057,569		$0.65 - $1.00		4.5	$	0.75		57,057,569		4.5	$	0.75
As of December 31, 2011		59,530,245		$0.65 - $2.00		3.5	$	2.00		59,530,245		3.5	$	2.00
Exercised		–		–		–		–		–		–		–
Ratchet-down impact		56,991,667		$0.30		–	$	0.30		56,991,667		–	$	0.30
Granted		15,763,330		$0.30 - $0.75		4.6	$	0.38		10,388,330		4.6		-
As of December 31, 2012		132,285,242		$0.30 - $2.00		3.5	$	0.40		126,910,242		3.5	$	0.38