Stock Based Compensation

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Stock Based Compensation

2014 Equity Incentive Plan

The purpose of the 2014 Equity Incentive Plan (the “2014 Plan”) is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The 2014 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors and consultants.  Pursuant to the terms of the 2014 Plan, either the Board or a board committee is authorized to administer the plan, including by determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards.  Unless earlier terminated by the Board, the Plan shall terminate at the close of business on January 30, 2024.  Up to 15,503,680 shares of common stock are issuable pursuant to awards under the 2014 Plan.

Compensation expense for all stock-based awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee's requisite service period (generally the vesting period of the equity award). The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. The Company estimates pre-vesting option forfeitures at the time of grant and reflects the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.

The grant date fair value of stock options granted during the nine months ended September 30, 2014 was $17,860,239.  The fair value of the Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained.  The Company does not expect to pay dividends in the foreseeable future so therefore the dividend yield is 0%.  The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options.  The expected term for stock options granted with performance and/or market conditions represents the period estimated by management by which the performance conditions and market conditions will be met.  The Company obtained the risk free interest rate from publicly available data published by the Federal Reserve.  The volatility rate was computed based on a comparison of average volatility rates of similar companies.  The fair value of options granted in 2014 was estimated using the following assumptions – exercise price $0.50, expected stock price volatility 73.9%, effective life 3.5 years, risk free rate 0.69%.

Stock-based compensation expense was $2,247,800 and $5,814,963 for the three and nine months ended September 30, 2014, respectively.

Stock Option Activity

A summary of stock option activity to employees for the nine months ended September 30, 2014 is as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value per Share		Avergae Remaining Contractual Life		Average Intrinsic Value
Outstanding at December 31, 2013		-	$	-	$	-		-	$	-
Granted		6,201,472		0.50		2.88		5.0		-
Expired		-		-		-		-		-
Forfeited		-		-		-		-		-
Outstanding at September 30, 2014		6,201,472	$	0.50	$	2.88		4.3	$	-
Exercisable as of September 30, 2014		-						-

The Company’s policy, in the event of exercise, is to issue new shares to fulfill the requirements for options that are exercised. There is $12,045,277 of unrecognized compensation cost as of September 30, 2014.