Note 6. Stock options and warrants:

 

Stock options:

 

The Company currently provides stock-based compensation to employees, directors and consultants, both under the Company's 2002 Stock Incentive Plan, as amended (the “Plan”), and non-qualified options and warrants issued outside of the Plan. During the six months ended June 30, 2014, the Company's shareholders approved amendments to the Plan to increase the number of shares reserved under the Plan from 1,912,205 to 3,673,126. The Company estimates the fair value of the share-based awards on the date of grant using the Black-Scholes option-pricing model (the “Black-Scholes model”).  Using the Black-Scholes model, the value of the award that is ultimately expected to vest is recognized over the requisite service period in the statement of operations.  Option forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The Company attributes compensation to expense using the straight-line single option method for all options granted. 

 

The Company's determination of the estimated fair value of share-based payment awards on the date of grant is affected by the following variables and assumptions:

 

 

The Company recognized total expenses for stock-based compensation during the periods ended June 30, as follows:

 

The above expenses are included in the accompanying Statements of Operations for the periods ended June 30, in the following categories:

 

 

 

Stock incentive plan options:

 

The Company currently provides stock-based compensation to employees, directors and consultants under the Plan. The Company utilized assumptions in the estimation of fair value of stock-based compensation for the six months ended June 30, as follows:

 

 

A summary of stock option activity under the Plan for options to employees, officers, directors and consultants, for the six months ended June 30, 2014, is presented below:

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on June 30, 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on June 30, 2014.

 

During the six months ended June 30, 2014, 39,079 incentive stock options were exercised to purchase common shares, resulting in total proceeds of approximately $82,000 and with an intrinsic value when exercised of approximately $14,000.

 

During the six months ended June 30, 2014, 221,000 options were issued to non-employee directors under the Plan, exercisable at an average of $2.27 per share. The options expire ten years from the date of grant and vest over one year, based upon 25% on the date of grant, and 25% on each of April 1, 2014, July 1, 2014, and October 1, 2014.

 

During the six months ended June 30, 2014, 406,100 options were issued to officers and employees under the Plan, exercisable at an average of $2.28 per share. The options expire ten years from the date of grant and vest over two years with 50% vesting upon six month anniversary of grant date and the remaining balance vesting over the following six quarters in arrears.

During the six months ended June 30, 2014, 25,000 options were issued to a consultant under the Plan, exercisable at $2.38 per share. The options expire ten years from the date of grant and vest over two years with 50% vesting upon six month anniversary of grant date and the remaining balance vesting over the following six quarters in arrears.

 

During the six months ended June 30, 2014, a total of 36,040 options that were granted under the Plan were forfeited, of which 31,475 were vested and 4,565 were unvested. The vested options were exercisable at an average of $36.66 per share and the unvested options were exercisable at an average of $2.12 per share. During the six months ended June 30, 2013, a total of 12,270 options that were granted under the Plan to employees were forfeited, 7,308 of which were unvested. The options were exercisable at an average of $20.16 per share.

 

The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the six months ended June 30, 2014 and 2013, was approximately $414,000 and $622,000, respectively.   Based upon the Company's experience, approximately 85% of the outstanding nonvested stock options, or approximately 562,000 options, are expected to vest in the future, under their terms.

 

A summary of the activity of nonvested options under the Plan to acquire common shares granted to employees, officers, directors and consultants during the six months ended June 30, 2014 is presented below:

 

At June 30, 2014, based upon employee, officer, director and consultant options granted under the Plan to that point, there was approximately $592,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of less than one year.

 

Other common stock purchase options and warrants:

 

As of June 30, 2014, in addition to the stock incentive plan options discussed above, the Company had outstanding 3,455,935 non-qualified options and warrants in connection with grants to officers that were not issued under the Plan and the issuance of warrants in connection with the Company's equity offerings.

 

During the six month periods ended June 30, 2014 and 2013, respectively, no stock options were granted outside of the Plan.  

 

Operating expenses for the three and six months ended June 30, 2014 and 2013, included nil for both periods and approximately $8,000 and $22,000, respectively, for the value of the non-qualified options and warrants.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the six months ended June 30, 2014:

 

During the six months ended June 30, 2014, warrants from the May 2013 public offering were exercised to purchase 1,161,570 shares of common stock at $1.36 per share resulting in total proceeds of approximately $1,580,000.

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on June 30, 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on June 30, 2014.

 

The total fair value of stock options previously granted to an officer that vested and became exercisable during the six months ended June 30, 2014 and 2013, was zero and $24,000, respectively. At June 30, 2014, there was no unrecognized cost for non-qualified options that will be recorded in the future.