Stockholders' Deficiency

3 Months Ended

Mar. 31, 2014

Stockholders Deficiency

Note 6 - Stockholders' Deficiency

Common Stock

On January 15, 2014, the Company issued 21,289 shares of Common Stock to an employee in accordance with an employment agreement.  The fair value of the shares was $10,646 based on the closing price on the date of issuance.

Preferred Stock

As of March 31, 2014 and December 31, 2013, the Company had accrued contractual dividends of $74,730 and $279,380, respectively, related to the Series B Preferred Stock. On January 1, 2014 and 2013, the Company issued 29,564 and 27,630 shares of Series B convertible preferred stock valued at $279,380 and $261,084, respectively, representing approximately $0.66 in value per share of Series B Preferred Stock outstanding on each date, to the Series B convertible preferred stock owners as payment in kind for dividends.

Stock Options

Stock-based compensation expense related to stock options was recorded in the condensed consolidated statements of operations as a component of selling, general and administrative expenses and totaled $151,853 and $312,444 for the three months ended March 31, 2014 and 2013, respectively.

As of March 31, 2014, stock-based compensation expense related to stock options of $1,476,372  remains unamortized, including $584,803 which is being amortized over the weighted average remaining period of 1.5 years.  The remaining $891,569 is related to a performance based option where vesting is currently deemed to be improbable and no amount is being amortized.

 Summary

A summary of the stock option activity during the three months ended March 31, 2014 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Outstanding, January 1, 2014		2,543,150		$	2.37
Granted		-			-
Exercised		-			-
Forfeited		(29,000	)		3.22
Outstanding, March 31, 2014		2,514,150		$	2.36		5.7	$	-
Exercisable, March 31, 2014		1,398,475		$	2.78		4.1	$	-

The following table presents information related to stock options at March 31, 2014:

		Options Outstanding				Options Exercisable
Range of Exercise Price		Weighted Average Exercise Price		Outstanding Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life In Years		Exercisable Number of Options
$	0.30 - $2.20	$	1.11		1,339,400	$	1.58		2.6		573,725
$	2.21 - $3.80		3.23		757,750		2.95		3.8		507,750
$	3.81 - $6.99		4.79		417,000		4.66		7.5		317,000
		$	2.36		2,514,150	$	2.78		4.1		1,398,475

Warrants

Valuation

In applying the Black-Scholes option pricing model to stock warrants, the Company used the following weighted average assumptions:

	March 31,
	2014	2013
Risk free interest rate	1.74%	0.88%
Dividend yield	0.00%	0.00%
Expected volatility	171.0%	164.3%
Expected life in years	5.00	5.00

Grants

See Note 5 – Notes Payable for details regarding warrants granted in connection with the issuances of notes payable.

The weighted average fair value of the stock warrants granted during the three months ended March 31, 2014 and 2013, was $0.23 and $1.38 per share, respectively.

Stock-based compensation expense related to warrants for the three months ended March 31, 2014 and 2013 was recorded in the condensed consolidated statements of operations as a component of selling, general and administrative expenses and totaled $264 and $504,777, respectively.  As of March 31, 2014, stock-based compensation expense related to warrants of $580,525 remains unamortized, including $3,685 which is being amortized over the weighted average remaining period of 1.5 years.  The remaining $576,840 is related to a performance based warrant where vesting is currently deemed to be improbable and no amount is being amortized.

A summary of the stock warrant activity during the three months ended March 31, 2014 is presented below:

			Weighted		Average
			Average		Remaining
	Number of		Exercise		Life		Intrinsic
	Warrants		Price		In Years		Value
Outstanding, January 1, 2014		2,342,846	$	0.96
Granted		150,000	$	0.35
Exercised		-	$	-
Forfeited		-		-
Outstanding, March 31, 2014		2,492,846	$	0.92		3.7	$	-
Exercisable, March 31, 2014		2,242,846	$	0.70		3.8	$	-

The following table presents information related to stock warrants at March 31, 2014:

		Warrants Outstanding				Warrants Exercisable
Range of Exercise Price		Weighted Average Exercise Price		Outstanding Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Life In Years		Exercisable Number of Warrants
$	0.25 - $0.35	$	0.27		1,900,000	$	0.27		4.1		1,900,000
$	0.36 - $3.00		2.91		562,846		2.91		2.4		312,846
$	3.01 - $4.95		4.95		30,000		4.95		3.5		30,000
$	0.25 - $4.95	$	0.92		2,492,846	$	0.70		3.8		2,242,846

Services Contributed

Effective January 1, 2013, an executive officer of the Company waived payment for services contributed. As a result, the Company imputed the value of the services contributed based on a compensation rate previously approved by the Compensation Committee and recorded salary expense of $87,500 for each of the three month periods ended March 31, 2014 and 2013, with a corresponding credit to stockholders’ deficiency.