Stock-based Plans

We have the 2010 Incentive Stock Option Plan and the 2013 Incentive Stock Option Plan under which we have granted stock options to our directors, officers and employees. At December 31, 2013, 6,085,015 shares were authorized under the plans and 261,716 shares were available for future grant.

We believe that such awards better align the interests of our directors, officers and employees with those of our shareholders. Option awards are generally granted with an exercise price that equals the fair market value of our stock at the date of grant. These option awards generally vest based on four years of continuous service and have five-year or 10-year contractual terms.

The following table summarizes stock option activity under our stock-based plans as of and for the year ended December 31, 2013:

The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock. At December 31, 2013, options to purchase 4,513,984 shares of common stock were in-the-money.

The weighted average grant-date fair value of options granted during the years 2013 and 2012 was $1.80 and $0.27, respectively.

On February 1, 2012 the Company granted one employee 1,667 options to purchase shares of Company common stock at the closing price as of February 1, 2012 of $6.96 per share.  The options vest 25% on the first anniversary of grant, then equally in monthly installments thereafter, and are exercisable until February 1, 2017.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 65% and a call option value of $3.24 was $5,404.

On June 11, 2012 the Company granted 17 employees a total of 25,269 options to purchase shares of Company common stock at the closing price as of June 11, 2012 of $4.14 per share.  The options vest 25% and the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until June 11, 2017.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 73.4% and a call option value of $2.14 was $56,206.

On June 11, 2012 the Company granted one employees a total of 33,334 options to purchase shares of Company common stock at the closing price as of June 11, 2012 of $4.14 per share.  The options vest 25% on the first anniversary of grant.  As to the remaining 75% of the shares (the “Performance Option Shares”), 10% of the Performance Option Shares (or such lower percentage then constituting the remainder of the Performance Option Shares) will vest for each full increment of $150,000 of Qualified Revenue (as defined below). “Qualified Revenue” means revenue from commission-eligible sales (as determined by the Corporation from time to time) actually collected by the Corporation from customers acquired primarily through Optionee’s direct sales efforts since January 1, 2012. The installments shall be cumulative (i.e., this option may be exercised, as to any or all shares covered by an installment, at any time or times after an installment becomes exercisable and until expiration or termination of this option).  The options are exercisable until June 11, 2017.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 73.4% and a call option value of $2.74 was $91,335.

On August 20, 2012 the Company granted two employees a total of 52,500 options to purchase shares of Company common stock at the closing price as of August 20, 2012 of $2.40 per share.  The options vest 25% and the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until August 20, 2017.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 61% and a call option value of $1.06 was $55,671.

On March 11, 2013 the Company granted 7 independent directors a total of 58,338 options to purchase shares of Company common stock at the closing price as of March 11, 2013 of $1.50 per share.  The options vest in twelve equal monthly installments following the grant date, and are exercisable until March 11, 2023.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 122% and a call option value of $1.26 was $73,763.

On March 11, 2013 the Company granted one employee 4,167 options to purchase shares of Company common stock at the closing price as of March 11, 2013 of $1.50 per share.  The options vest 25% on the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until March 11, 2018.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 122% and a call option value of $1.13 was $4,714.

On June 12, 2013 the Company granted one employee 417,326 options to purchase shares of Company common stock at the closing price as of June 12, 2013 of $2.04 per share.  The options will vest as follows: (a) 33% of the options will vest at rate of 1/48th per month for the first forty-eight (48) months following the date of grant, (b) another 33% of the options vest when the Company reports $500,000 of EBITDA for an entire fiscal year, and (c) the final 33% of the options will vest when the Company reports $5,000,000 of EBITDA for an entire fiscal year.  The options are exercisable until June 12, 2023. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.84 was $767,879.

On June 17, 2013 the Company granted two employees 2,782,174 options to purchase shares of Company common stock at the closing price as of June 17, 2013 of $1.80 per share.  The option will vest as follows: (a) 20% of the shares underlying the option will vest and first become exercisable upon the date of grant; (b) 40% of the shares underlying the option will vest and first become exercisable when the Company realizes $10,000,000 of gross revenue over any  fiscal year; and (c) the final 40% of the shares underlying the option will vest and first become exercisable at the rate of 1/48th per month over a 48 month period commencing on grant date, provided that the vesting of the final 40% shall accelerate and become fully vested when the Company realizes $15,000,000 of gross revenue over any  fiscal year..  The options are exercisable until June 17, 2023.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.55 was $4,312,370.

On June 17, 2013 the Company granted two employees 1,669,306 options to purchase shares of Company common stock at the closing price as of June 17, 2013 of $1.80 per share.  The options will vest and first become exercisable over a four year period at the rate of 1/48th shares per month commencing on the first month following the date of grant, and are exercisable until June 17, 2023.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.62 was $2,704,276.

On June 20, 2013 the Company granted 2 independent directors 33,334 options to purchase shares of Company common stock at the closing price as of June 20, 2013 of $2.46 per share.  The options will vest and first become exercisable immediately upon the date of grant, and are exercisable until June 20, 2016.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.43 was $47,668.

On June 20, 2013 the Company granted 6 independent directors 100,002 options to purchase shares of Company common stock at the closing price as of June 20, 2013 of $2.46 per share.  The options vest in three equal amounts on each of the next three anniversary dates of this agreement, and are exercisable until June 20, 2023.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $2.21 was $221,004.

On July 19, 2013 the Company granted two employees 33,335 options to purchase shares of Company common stock at the closing price as of July 19, 2013 of $4.20 per share.  The options vest 25% on the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until July 19, 2018.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $3.78 was $126,006.

On July 26, 2013 the Company granted four employees 27,502 options to purchase shares of Company common stock at the closing price as of July 26, 2013 of $3.90 per share.  The options vest 25% on the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until July 26, 2018.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $3.52 was $96,807.

On July 26, 2013 the Company granted one employees 278,218 options to purchase shares of Company common stock at the closing price as of July 26, 2013 of $3.90 per share.  Options to purchase 139,109 shares of common stock will vest and first become exercisable over a four year period at the rate of 1/48th shares per month commencing on the first month following the date of grant.  Options to purchase the remaining 139,109 shares of common stock will vest and first become exercisable when the Company realizes $20,000,000 of gross revenue over any fiscal year.  The options are exercisable until July 26, 2023.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $3.52 was $976,545.

On September 13, 2013 the Company granted one employee 58,334 options to purchase shares of Company common stock at the closing price as of September 13, 2013 of $3.36 per share.  The options vest 25% on the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until July 19, 2018.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $3.03 was $176,752.

On September 13, 2013 the Company granted 4 independent directors a total of 3,335 options to purchase shares of Company common stock at the closing price as of September 13, 2013 of $3.36 per share.  The options vest in twelve equal monthly installments following the grant date, and are exercisable until September 13, 2023.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $2.95 was $9,838.

On November 13, 2013 the Company granted one employee 8,334 options to purchase shares of Company common stock at the closing price as of November 13, 2013 of $2.75 per share.  The options vest 25% on the first anniversary of grant, then equally in 36 monthly installments thereafter, and are exercisable until November 13, 2018.  The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $2.48 was $20,668.

Stock-based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for years ended December 31, 2013 and 2012 was as follows: 

As of December 31, 2013, there was approximately $3,074,119 of unearned stock-based compensation that will be expensed from 2013 through 2017. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent we grant additional equity awards.

Stock Option Valuation Assumptions

We calculated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model. The ranges of assumptions were used for the years ended December 31, 2013 and 2012:

The risk-free interest rate assumption is based upon published interest rates appropriate for the expected life of our employee stock options.

The expected life of the stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

The dividend yield assumption is based on our history of not paying dividends and no future expectations of dividend payouts.

The expected volatility in 2013 is based on the historical publicly traded price of our common stock. The expected volatility prior to 2013 is based on the historical volatility of publicly traded surrogates in our peer group.