Note 7 - Shareholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

NOTE 7 – SHAREHOLDERS’ EQUITY

Common Stock

During the three months ended March 31, 2011, we raised $986,332, net of offering costs, from the sale of 52,248,537 shares of our common stock to various investors in a private placement.  During the three months ended June 30, 2011, we raised $500,000, net of offering costs, from the sale of 5,000,000 shares of our common stock to various investors in a private placement.

Restricted Stock Issuances

On May 20, 2011, we issued an aggregate of 140,000 shares of restricted common stock in exchange for professional services.  During the three months ended June 30, 2011, we recognized $35,000 of professional fee expense related to the issuance of these sharesbased upon the trading price on the date the shares were issued.

On July 1, 2011, we issued 750,000 shares of restricted common stock in exchange for professional services.  During the three months ended September 30, 2011, we recognized $465,000 of professional fee expense related to the issuance of these shares based upon the trading price on the date the shares were issued.

On August 18, 2011, we entered into an agreement to issue up to 180,000 shares through December 1, 2011, in exchange for professional services.  During the three months ended September 30, 2011, 90,000 shares were deemed to be earned and we recognized $39,600 of professional fee expense related to the issuance of these shares based upon the trading price on the date the shares were granted.  As of September 30, 2011, the shares were not issued by our company.

Stock Options

In 2010, Phototron adopted a Stock Incentive Plan (the “2010 Plan”).  Pursuant to the 2010 Plan, Phototron’s board of directors or a committee appointed thereby may grant, at its discretion, qualified or nonqualified stock options, and may grant or sell restricted stock to key individuals, including employees, nonemployee directors, consultants and advisors.  The options vest over periods determined by the administrator of the 2010 Plan.

On February 14, 2011, Phototron amended the 2010 Plan.  The amendment increased the number of shares reserved by the 2010 Plan from 333,333 to 433,333 shares of Phototron’s common stock (26,124,268 to 33,961,557 shares of our common stock accounting for the exchange ratio in the Merger) and increased the number of shares that may be granted to any participant from 200,000 to 250,000 (15,674,577 to 19,593,221 shares of our common stock accounting for the exchange ratio in the Merger).

Concurrent with the February 14, 2011 amendment to the 2010 Plan, Phototron issued options to purchase 333,333 shares of Phototron’s common stock to its directors and officers, which, after assumption in the Merger, now entitle such officers and directors to purchase 26,124,268 shares of our common stock, and options to purchase 100,000 shares of Phototron’s common stock to certain of its employees and consultants, which, after assumption in the Merger, now entitle such holders to purchase 7,837,289 shares of our common stock.  All of the options have an exercise price of approximately $0.02 per share, which was management’s estimate of the fair value of the common stock on the date of grant, and a ten-year term.  The options granted to directors and officers vest one-half upon issuance and one-half on the one year anniversary.  All other options vested immediately upon issuance.  On May 20, 2011, we issued 11,500,000 stock options to certain of our employees.  All of the options have an exercise price of $0.25 per share, which was the closing price of our common stock as quoted on the OTC electronic interdealer quotation system (“OTCQB”) on the date of grant, and a ten-year term.  The options vest over two years.

On May 17, 2011, our board of directors approved the 2011 Stock Incentive Plan (the “2011 Plan”).  Pursuant to the 2011 Plan, our board of directors of a committee appointed thereby may grant, at its discretion, qualified or nonqualified stock options, stock appreciation rights and may grant or sell restricted stock to key individuals, including employees, nonemployee directors, consultants and advisors.  The options vest over periods determined by the administrator of the 2011 Plan.  The 2011 Plan reserved 18,870,184 shares.  Option prices issued under the plan may not be less than 100% of the fair market value of the common stock on the date the option is granted.  The options are exercisable no later than ten years from date of grant.  During the quarter ended September 30, 2011, we issued 10,000,000 stock options to our officers, directors and outside consultants.  The options have an exercise price of $0.13 to $0.31 per share, which was the stock price on the date of grant and a ten-year term. One-half of these stock options vested upon issuance and the remainder vest in periods of up to two years from the grant date.

The weighted average grant date fair value of the stock options granted during the nine months ended September 30, 2011 was $0.068.  The total stock based compensation recognized on our statement of operations for the three and nine months ended September 30, 2011 was $1,969,230 and $2,295,613 respectively.  As of September 30, 2011, the aggregate value of unvested stock options was $1,480,563, which will vest over an average period of one year.

Fair value was estimated at the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions:

	Nine Months Ended September 30, 2011
Risk-free interest rate		3.34	%
Expected dividend yield	None
Expected life	5.32 years
Expected volatility		77	%

The following table summarizes stock option activity for our company during the nine months ended September 30, 2011:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding December 31, 2010		-	$	0.00
Granted		55,461,557	$	0.10
Exercised		-	$	0.00
Forfeited or expired		-	$	0.00
Outstanding September 30, 2011		55,461,557	$	0.10		8.71	$	4,548,964
Vested or expected to vest at September 30, 2011		30,899,423	$	0.09		8.04	$	2,788,520

The aggregate intrinsic value was calculated as the difference between the market price and the exercise price of our common stock, which was $0.15 as of September 30, 2011.