NOTE 13 – STOCK OPTIONS

During 1999, the Board adopted, with the approval of the stockholders, a Stock Option Plan. In 2000, the Board superseded that plan and created a new Stock Option Plan (the “2000 Plan”), pursuant to which it is authorized to grant options to purchase up to 1.5 million shares of Common Stock. On December 17, 2003, the Board, with approval of the stockholders, superseded the 2000 Plan and created the 2003 Stock Option Plan (the “2003 Plan”). Under the 2003 Plan the Company is authorized to grant options to purchase up to 18,000,000 shares of Common Stock to the Company’s employees, officers, directors, consultants, and other agents and advisors. The 2003 Plan is intended to permit stock options granted to employees under the 2003 Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2003 Plan, which are not intended to qualify as Incentive Stock Options, are deemed to be non-qualified options (“Non-Statutory Stock Options”).

During 2013, the Board adopted a new omnibus incentive compensation plan (the “2013 Plan,” and together with the 2000 Plan and the 2003 Plan, the “Plans.”) which serves as the successor incentive compensation plan to the 2003 Plan, and provides the Company with a comprehensive plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for the Company’s employees, non-employee directors and certain consultants and advisors.

As of September 30, 2015, there are 2,397,953 options (post Reverse Stock Split) that have been issued under the Plans, and 36,027,929 options that are available to be issued under the Plans. There are an additional 425,882 options that are have been issued that are not included in the Plans.

The 2013 Plan is administered by a committee of the Board (“Stock Option Committee”) which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.

In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the Common Stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company). The aggregate fair market value (determined at the time of the grant) of stock for which an employee may exercise Incentive Stock Options under all plans of the company shall not exceed $1,000,000 per calendar year. If any employee shall have the right to exercise any options in excess of $100,000 during any calendar year, the options in excess of $100,000 shall be deemed to be Non-Statutory Stock Options, including prices, duration, transferability and limitations on exercise.

The Company issued Non-Statutory Stock Options pursuant to contractual agreements with non-employees. Options granted under the agreements are expensed when the related service or product is provided.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties and judgments.

On June 11, 2015, the Company issued options to purchase an aggregate of 1,225,000 shares (104,125,000 pre Reverse Stock Split) of the Common Stock at an exercise price of $0.85 per share, with a term of five years, to three employees and two members of the Board. The fair value of options issued was $993,083. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 176.6%, risk-free interest rate of 1.74% to 1.75% and expected option life of five years. The options are being expensed over the vesting terms for the employees and over the Board members’ remaining service terms as that is shorter than the vesting terms.

On July 9, 2015, the Company hired a COO who received 375,000 options (31,875,000 pre Reverse Stock Split) to purchase shares of Common Stock of the Company, with an exercise price of $0.85 ($0.01 pre reverse split) and valued at $1,502,219. The options vest quarterly over three years. The fair value of the options was valued using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 180.1%, risk free interest rate of 1.58% and expected life of five years. The options are being expensed over the vesting terms.

On August 10, 2015, the Company hired a CFO who received 200,000 options (17,000,000 pre Reverse Stock Split) to purchase shares of Common Stock vesting annually over three years. The options were valued at fair value of $1,107,857, using the Black-Scholes option pricing model with the following assumptions: no dividend yield, expected volatility of 182.2%, risk free rate interest rate of 1.62% and expected life of five years. The options are being expensed over the vesting terms.

On September 25, 2015, the Company issued options to purchase an aggregate of 75,000 shares (6,375,000 pre Reverse Stock Split) of Common Stock at an exercise price of $2.15 per share, with a term of five years to a member of the Board. The fair value of options issued was $155,003. These options were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 183.5%, risk-free interest rate of 1.48% and expected option life of five years. The options are being expensed over the service term as that is shorter than the vesting terms.

For the three and nine months ended September 30, 2015 the Company expensed $314,960 and $349,055 with respect to the options.

The following tables summarize non-employee stock option/warrant activity of the Company since December 31, 2014:


	Option/Warrant Shares			Exercise Price	Weighted Average Exercise Price
Outstanding, December 31, 2014		1,425,481		$0.85 to $17.00	$	8.50

Granted		—		—		—
Exercised		(45,882	)	0.85 - 4.25		—
Expired		—		—		—


Outstanding, September 30, 2015		1,379,599		$0.85 to $12.75	$	9.11


Exercisable, September 30, 2015		1,379,599		$0.85 to $12.75	$	9.11


Weighted Average Remaining Life, Exercisable, September 30, 2015 (years)		5.0

A summary of incentive stock option transactions for employees since December 31, 2014 is as follows:


	Option/Warrant Shares			Exercise Price	Weighted Average Exercise Price
Outstanding, December 31, 2014		633,725		$4.25 - $12.75	$	4.25

Granted		1,875,000		0.85 - 5.95		1.25
Exercised		—		—		—
Expired/Returned		(308,235	)	4.25 - 12.75		—


Outstanding, September 30, 2015		2,200,490		$0.85 to $12.75	$	1.97


Exercisable, September 30, 2015		506,740		$0.85 to $12.75	$	3.62


Weighted Average Remaining Life, Exercisable, September 30, 2015 (years)		7.1