Stockholders' Deficiency

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

6. Stockholders' Deficiency

Preferred Stock

As of September 30, 2015 and December 31, 2014, the Company had accrued cumulative contractual dividends of $239,882 and $298,918, respectively, related to the Series B Preferred Stock. On January 1, 2015 and 2014, the Company issued 31,633 and 29,564 shares of Series B convertible preferred stock valued at approximately $299,000 and $279,000, 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

Valuation

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

	For The Three Months Ended		For The Nine Months Ended
	September 30,		September 30,
	2015	2014	2015	2014
Risk free interest rate	1.74% to 2.28%	0.97% to 1.75%	1.35% to 2.28%	0.97% to 1.75%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	196.0 to 197.0%	190.0%	195.0% to 197.0%	190.0%
Expected life in years	5.5 to 10.0	3.0 to 5.5	5.5 to 10.0	3.0 to 5.5

Grants

The weighted average fair value of the stock options granted during the three and nine months ended September 30, 2015 was $0.12 and $0.10 per share, respectively.  The weighted average fair value of the stock options granted during the three and nine months ended September 30, 2014 was $0.17 per share.

During the nine months ended September 30, 2015, the Company granted options to employees and directors of the Company to purchase an aggregate of  1,865,633 shares of common stock under the 2014 Plan at a weighted average exercise price of $0.10 per share for an aggregate grant date value of $184,860.  The options have a vesting period ranging from immediate to three years and have a term of ten years.

During the nine months ended September 30, 2015, the Company granted options to consultants of the Company to purchase an aggregate of 349,861 shares of common stock under the 2014 Plan at a weighted average exercise price of $0.11 per share for an aggregate grant date value of $37,423.  The options have a vesting period ranging from immediate to three years and have a term of ten years.

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 $59,525 and $245,814 for the three and nine months ended September 30, 2015, respectively, and $99,940 and $358,144 for the three and nine months ended September 30, 2014, respectively.  Option forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The Company estimated forfeitures related to option grants at an annual rate of 4% for options granted during the nine months ended September 30, 2015.

As of September 30, 2015, stock-based compensation expense related to stock options of $1,063,062 remains unamortized, including $171,493 which is being amortized over the weighted average remaining period of 2.0 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 nine months ended September 30, 2015 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Life		Intrinsic
	Options			Price		In Years		Value
Outstanding, January 1, 2015		3,944,557		$	1.27
Granted		2,215,494			0.10
Exercised		-			-
Forfeited		(893,923	)		0.84
Outstanding, September 30, 2015		5,266,128		$	0.85		7.7	$	5,971
Exercisable, September 30, 2015		3,654,959		$	0.88		7.4	$	2,521

The following table presents information related to stock options at September 30, 2015:

	Options Outstanding		Options Exercisable
	Weighted		Weighted	Weighted
Range of	Average	Outstanding	Average	Average	Exercisable
Exercise	Exercise	Number of	Exercise	Remaining Life	Number of
Price	Price	Options	Price	In Years	Options
$0.09 - $2.20	$      0.23	4,307,628	$      0.24	8.4	2,951,459
$2.21 - $3.80	3.23	751,500	2.95	2.2	501,500
$3.81 - $6.99	5.16	207,000	5.16	6.6	202,000
	$      0.85	5,266,128	$      0.88	7.4	3,654,959

Warrants

Valuation

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

	For The Three Months Ended		For The Nine Months Ended
	September 30,		September 30,
	2015	2014	2015	2014
Risk free interest rate	1.75%	1.69% to 2.32%	1.26% to 1.75%	1.69% to 2.52%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility	196.0%	189.0% to 190.0%	195.0% to 197.0%	171.0% to 190.0%
Expected life in years	7.1	5.0 to 8.0	5.0 to 7.5	5.0 to 8.5

Grants

The weighted average fair value of the stock warrants granted during the nine months ended September 30, 2015 was $0.08 per share.  There were no warrants granted during the three months ended September 30, 2015.  The weighted average fair value of the stock warrants granted during the three and nine months ended September 30, 2014, was $0.22 and $0.23 per share, respectively.

On April 3, 2015, the Company granted warrants to a former employee of the Company to purchase an aggregate of 137,430 shares of common stock at an exercise price of $0.09 per share for an aggregate grant date value of $12,018.  The warrants have a term of five years.  The warrants were issued as repayment for amounts previously accrued.

Stock-based compensation expense related to warrants for the three and nine months ended September 30, 2015 was recorded in the condensed consolidated statements of operations as a component of selling, general and administrative expenses and totaled $21 and $12,300, respectively, and $134,205 and $133,618 for the three and nine months ended September 30, 2014, respectively.  As of September 30, 2015, stock-based compensation expense related to warrants of $576,880 remains unamortized, including $40 which is being amortized over the weighted average remaining period of 0.04 year.  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 nine months ended September 30, 2015 is presented below:

			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Life		Intrinsic
	Warrants		Price		In Years		Value
Outstanding, January 1, 2015		9,339,044	$	0.45
Granted		637,430	$	0.10
Exercised		-	$	-
Forfeited		-		-
Outstanding, September 30, 2015		9,976,474	$	0.43		3.5	$	1,374
Exercisable, September 30, 2015		9,716,474	$	0.36		3.6	$	1,374

The following table presents information related to stock warrants at September 30, 2015:

	Warrants Outstanding		Warrants Exercisable
	Weighted		Weighted	Weighted
Range of	Average	Outstanding	Average	Average	Exercisable
Exercise	Exercise	Number of	Exercise	Remaining Life	Number of
Price	Price	Warrants	Price	In Years	Warrants
$0.09 - $0.35	$      0.27	9,383,628	$      0.27	3.7	9,383,628
$0.36 - $3.00	2.91	562,846	2.91	0.9	312,846
$3.01 - $4.95	4.95	30,000	4.95	2.0	20,000
$0.09 - $4.95	$      0.43	9,976,474	$      0.36	3.6	9,716,474