Share-based payments

3 Months Ended

Mar. 31, 2016

Notes to Financial Statements

Note 7 - Share-based payments

Amounts recognized as expense in the consolidated statements of operations related to share-based payments are as follows:

	Three months ended March 31,
	2016			2015
Nonemployee common stock	$	--		$	31,200
Nonemployee warrants – fully-vested upon issuance		445,390			--
Nonemployee warrants – service and performance conditions		9,856			4,462
Employee stock options – market price-based		327,000			327,000
Total share-based expense charged against income	$	782,246		$	362,662
Impact on net loss per common share:
Basic and diluted	$	(0.01	)	$	(0.01	)

Nonemployee common stock

UPT management agreement

In July, 2014, we entered into an agreement with the company managing the operations of UPT, whereby we would issue common stock under the following conditions:

Condition	Number of Shares
UPT recognizes $100 million of revenue or a change in control		500,000
UPT recognizes $100 million of revenue		150,000
		650,000

As of March 31, 2016, and from the date of the agreement, meeting these conditions was not deemed probable, so no expense was recognized under this agreement and no common stock was issued.

Investor relations agreement

In June, 2014, we entered into an agreement with a company, which subsequently became a shareholder, to provide investor relations services. Under the terms of this agreement we agreed to issue 60,000 shares of common stock each quarter through May 2015, for a total of 240,000 shares. We recognized expense of $31,200, during the quarter ended March 31, 2015, for the issuance of 60,000 shares.

Other

During the quarters ended March 31, 2016 and 2015, we issued no other shares of common stock in exchange for services.

Nonemployee common stock warrants -- Fully-vested upon issuance

Financing Advisory Services

In January 2016, we modified the terms of previously issued warrants and issued additional warrants to a company that provides us with financial consulting services. We lowered the exercise price on 2,533,000 warrants to $0.30 per share for warrants that previously had exercise prices ranging from $0.56 to $2.50 per share. As a result of modifying the previously issued warrants, we recognized expense of $64,000. We also issued 1,266,503 additional warrants with an exercise price of $0.30 per share that expire in five years, for which we recognized expense of $246,500.

The following summarizes the Black-Scholes assumptions used to estimate the fair value of these common stock warrants:

	Replacement Warrants			Additional Warrants
Volatility	133 – 182		%		204	%
Risk-free interest rate	1.1 – 1.3		%		1.4	%
Expected life (years)	3.0 – 4.3				5.0
Dividend yield		--			--

Board of Advisors

In February 2016, we issued three year warrants to purchase 400,000 shares of common stock at an exercise price of $0.27 per share and 200,000 shares of common stock at an exercise price of $0.31 per share, to five individuals serving on our board of advisors. We recognized $134,890 of expense for these warrants.

The following summarizes the Black-Scholes assumptions used to estimate the fair value of these common stock warrants:

Volatility	127	%
Risk-free interest rate	0.9	%
Expected life (years)	3.0
Dividend yield	--

Nonemployee common stock warrants -- Service and performance conditions

UPT management agreement

In July, 2014, we entered into a three year agreement with the company managing the operations of UPT, whereby we would issue common stock warrants under the following conditions:

		Number of
Vesting Condition	Category	Warrants
Fully vest upon UPT generating $1 million of revenue	Performance		350,000
45,945 warrants for every $3 million of revenue generated by UPT up to $100 million	Performance		1,530,000
60,000 warrants for every three months of completed service managing UPT	Service		720,000
Total			2,600,000
Vested – March 31, 2016			(420,000	)
Nonvested – March 31, 2016			2,180,000

The common stock warrants have a three year life and an exercise price of $1.00 per share. The grant date fair value was $2,586,000. As of March 31, 2016, and since the date of the agreement, we have not deemed it probable that the performance conditions will be met, so no expense was recognized and no common stock warrants vested. During the three months ended March 31, 2016 and 2015, 60,000 of the common stock warrants under the service condition vested with the passage of time and we recognized expense of $9,856 and $24,877, respectively.

Financing advisory services

In March, 2014, we entered into an agreement with a company, which is also a shareholder, to provide financing advisory services, in return for 400,000 common stock warrants having a five year life and an exercise price of $2.50, with vesting in March, 2015 upon satisfactory performance under the agreement. As of December 31, 2014, we deemed it probable that the vesting conditions would be met. Accordingly, during the year ended December 31, 2014, we recognized estimated expense of $200,379. As of March 31, 2015, the service conditions were met and the award was re-valued at $179,964, resulting in a reduction in expense of $20,415 during the quarter ended March 31, 2015.

Employee stock options – Fully-vested

We granted no additional fully-vested options during the three months ended March 31, 2016.

Employee stock options – Market-based

We granted no additional options that vest upon the achievement of certain stock prices during the three months ended March 31, 2016. No additional non-vested market-based options vested during the quarter ended March 31, 2016.