Quarterly report pursuant to Section 13 or 15(d)

NOTE 7 - OPTIONS AND WARRANTS

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NOTE 7 - OPTIONS AND WARRANTS
6 Months Ended
Jun. 30, 2014
Disclosure Text Block Supplement [Abstract]  
Shareholders' Equity and Share-based Payments [Text Block]
NOTE 7 — OPTIONS AND WARRANTS

There is not a viable market for the Company’s common stock to determine its fair value, therefore management is required to estimate the fair value to be utilized in the determining stock based compensation costs.  In estimating the fair value, management considers recent sales of its common stock to independent qualified investors, placement agents’ assessments of the underlying common shares relating to our sale of preferred stock and validation by independent fair value experts. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates

On October 19, 2012, the Company’s Board of Directors approved the 2012 Equity Incentive Plan (“the “2012 Plan) and terminated the Long-Term Incentive Plan (the “ 2011 Plan”). The Plan provides for the issuance of options to purchase up to 3,500,000 shares of the Company’s common stock to officers, directors, employees and consultants of the Company. Under the terms of the Plan the Company may issue Incentive Stock Options as defined by the Internal Revenue Code to employees of the Company only and nonstatutory options. The Board of Directors of the Company determines the exercise price, vesting and expiration period of the grants under the Plan. However, the exercise price of an Incentive Stock Option should not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more stockholder and 100% of fair value for a grantee who is not 10% stockholder. The fair value of the common stock is determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in good faith.

Additionally, the vesting period of the grants under the Plan will be determined by the Committee, in its sole discretion, and expiration period not more than ten years. The Company reserved 500,000 shares of its common stock for future issuance under the terms of the Plan.

As of June 30, 2014, the Company granted an aggregate of 2,990,977 options to directors and key consultants with an aggregate estimated fair value of $3,380,851.

A summary of the stock option activity and related information for the 2012 Plan for the six months ended June 30, 2014 is as follows:

   
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual Term
 
Aggregate Intrinsic
Value
 
Outstanding at January 1, 2014
 
2,990,977
 
$
2.05
 
6.02
 
$
-
 
Grants
 
-
 
$
-
 
-
 
$
-
 
Exercised
 
-
                 
Forfeitures or expirations
 
-
                 
Outstanding at June 30,
2014
 
2,990,977
 
$
2.05
 
5.52
 
$
1,343,204
 
                       
Vested and expected to vest at
June 30, 2014
 
2,990,977
 
$
2.05
 
5.52
 
$
1,343,204
 
Exercisable at June 30,
2014
 
1,904,659
 
$
2.08
 
5.74
 
$
805,734
 

The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s estimated stock price of $2.50 as of June 30, 2014, which would have been received by the option holders had those option holders exercised their options as of that date.

The fair value of all options vesting during the three and six months ended June 30, 2014 of $212,495 and $556,332, respectively, and $643,555 and $2,658,870 for the three and six months ended June 30, 2013, respectively, was charged to current period operations.  Unrecognized compensation expense of $544,106 at June 30, 2014 will be expensed in future periods.

Warrants

The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company, all of which were exercisable, at June 30, 2014: 

Exercise
 
Number
  Expiration
Price
 
Outstanding
  Date
$
0.001
 
383,320
     
January 2020
$
1.50
 
3,721,518
  February 2018 to
 September 2018
$
1.84
 
35,076
     
January 2020
$
2.02
 
30,755
     
January 2020
$
3.67
 
193,934
  December 2018 to
  January 2019
$
3.75
 
137,856
     
April 2019
     
4,502,459
       

In February 2014, as described in the terms of the warrants issued in connection with the sale of the Series C preferred stock, the Company reset 2,138,800 previously issued warrants from a exercise price of $2.61 per share to $1.50.  In addition, the Company was required to increase the number of issued warrants to an aggregate total of  3,721,518 warrants.

On January 31, 2014, the Company issued an aggregate of 64,626 warrants to purchase the Company’s common stock at $3.67 per share for five years in connection with the sale of the Company’s common stock.

In April 2014, the Company issued an aggregate of 137,856 warrants to purchase the Company’s common stock at $3.75 per share for five years in connection with the sale of the Company’s common stock.