Note 10 - Stock-Based Compensation

12 Months Ended

Dec. 31, 2014

Note 10 - Stock-Based Compensation

Note 10 - Stock-Based Compensation

Note 10 – Stock-Based Compensation

In 2009, the Company approved the 2009 Employee, Director and Consultant Stock Option Plan (the “2009 Plan”) and authorized an option pool of 5,500,000 shares that was subject to a 3-for-1 reverse stock split, resulting in an authorized option pool of 1,833,333. Stock options typically vest over a three-year period and have a life of ten years from the date granted. In 2009, the Company accelerated the option vesting of certain employees who terminated their employment, but agreed to work in a consulting capacity. In exchange for the accelerated vesting, the employees agreed to shorter expiration periods for their options. As of December 31, 2014 there were 339,567 shares available for awards under this plan.

In 2012, the Company approved the 2012 Employee, Director and Consultant Stock Option Plan (the “2012 Plan”) and authorized an option pool of 7,500,000 shares. Stock options typically vest over a three year period and have a life of ten years from the date granted. As of December 31, 2014, there were 4,683,000 shares available for awards under this plan.

During the years ended December 31, 2014 and 2013, the Company granted 1,329,000 and 4,970,000 options, respectively, to acquire shares of common stock to employees, directors or consultants.

On February 12, 2014, Arol Buntzman resigned from his positions as Chairman, Director and Chief Executive Officer (“CEO”) of the Company. As a result of Mr. Buntzman’s resignation pursuant to the December 2013 non-qualified stock option agreement between him and the Company, which granted to him options to purchase up to 4,000,000 shares of common stock outside of the Company’s 2009 and 2012 stock option plans (the “Option Agreement”), options to purchase 1,500,000 shares of stock were automatically cancelled. These options covered the tranches of 500,000 shares each at an exercise price of $0.40, $0.60 and $0.70, respectively. The Company believes that some or all of the remaining options under the Option Agreement, representing 1,500,000 shares in three tranches of 500,000 shares each at exercise prices of $0.40, $0.60 and $0.70, respectively, should be cancelled based on the circumstances of Mr. Buntzman’ s resignation. Mr. Buntzman disputes the Company’s position. If the dispute is not settled, the matter is subject to binding arbitration. No demand for arbitration has been filed by either party.

The grant-date fair value of options is estimated using the Black-Scholes option pricing model. The per share weighted average fair value of stock options granted during the twelve months ended December 30, 2014 was $0.15, $0.23 and $0.30 and was determined using the following assumptions: expected price volatility ranging between 46.7% to 50.3%, risk-free interest rate ranging from 1.38% to 2.23%, zero expected dividend yield, and six to ten years expected life of options. The per share weighted average fair value of stock options granted during 2013 was $0.36 and was determined using the following assumptions: expected price volatility ranging between 51% to 53%, risk-free interest rate ranging from .76% to 1.68%, zero expected dividend yield, and six years expected

life of options. The expected term of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff Accounting Bulletin 107, and represents the period of time that options granted are expected to be outstanding. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted on an investment basis in effect at the time of grant for that business day.

In August 2014, the Company’s Board of Directors approved the modification of outstanding options to acquire 3,206,666 shares, reducing the then-applicable exercise prices ranging from $0.23 to $0.35 per share, to the then-current market price of $0.11 per share. The Company compared the fair value of the options immediately prior to the modification to their fair value immediately after the modification and determined that the option holders received incremental compensation of $93,630, of which $26,237 was related to fully vested options and recognized as expense on the date of modification, and $67,939 will be recognized as stock-based compensation expense over remaining vesting periods through April 2017.

As of December 31, 2014, there was approximately $154,689 of total unrecognized stock compensation expense, related to unvested stock options under the both Plans. This expense is expected to be recognized over the remaining weighted average vesting periods of the outstanding options of .81 years.

A summary of options issued, exercised and cancelled for the years ended December 31, 2014 and 2013 are as follows:

	Shares			Weighted- Average Exercise Price ($)		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($)
Outstanding at December 31, 2012		7,384,618			0.34		8.30		—
Granted		4,970,000			0.48		9.87		—
Exercised		(110,092	)		0.35				—
Cancelled		(3,928,568	)		0.35				—
Outstanding at December 31, 2013		8,315,958		$	0.42		9.09		—
Granted		1,329,000			0.21		9.106		—
Exercised		—			—		—		—
Cancelled		(2,834,192	)		0.46		—		—
Outstanding at December 31, 2014		6,810,766		$	0.26		8.11		—
Exercisable at December 31, 2014		6,079,806		$	0.36		8.37		—