COMPENSATION AND SERVICE WARRANTS AND OPTIONS

 

Option Issuances 

 

On November 30, 2012, the Company’s Board of Directors and a majority of the Company’s shareholders approved the Company’s 2012 Omnibus Incentive Plan (the “2012 Plan”). On January 11, 2013, the Board of Directors of the Company approved the Company’s 2013 Omnibus Incentive Plan (the “2013 Plan”). The 2013 Plan was approved by a majority of the Company’s shareholders on February 13, 2013 (collectively “The Plans”). The Plans enable the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, phantom stock and dividend equivalent rights to employees, directors, consultants, and advisors of the Company and its affiliates, and to improve the ability of the Company to attract, retain, and motivate individuals upon whom the Company’s sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company.  Stock options granted under the Plan may be Non-Qualified Stock Options or Incentive Stock Options, within the meaning of Section 422(b) of the Internal Revenue Code of 1986, except that stock options granted to outside directors and any consultants or advisers providing services to the Company or an affiliate shall in all cases be Non-Qualified Stock Options. The Plans are to be administered by the Board, which shall have discretion over the awards and grants thereunder. The option price must be at least 100% of the fair market value on the date of grant and if issued to a 10% or greater shareholder must be 110% of the fair market value on the date of the grant. The aggregate maximum number of shares of Common Stock for which stock options or awards may be granted pursuant to the Plans is 5,000,000 each, adjusted as provided in Section 11 of the Plan. No grants or awards may be issued under the Plans after December 1, 2014 and December 1, 2015, respectively.

 

On March 27, 2014, the Company entered into a contract with Mr. Andrew Shapiro to serve as a member of the Company’s Board of Directors which was approved by the Board of Directors on April 17, 2014. The terms of the agreement require the Company to (1) issue options to Mr. Shapiro to purchase 400,000 shares of the Company’s common stock at a premium of $0.01 to the closing market price on the date of the Board of Directors approval to his appointment to the Company’s Board of Directors which vest immediately and expire seven years from date of issuance; (2) a board fee of $100,000 payable in quarterly installments commencing 15 days from his appointment to the Company’s Board of Directors;(3) options to purchase 5,000 shares of the Company’s stock which vest in one year from the date of the meeting and expire five years from the date of issuance at an exercise price equal $0.01 in excess of the closing price of the Company’s common stock on the date of the meeting and a Nominal Fee, as defined, for every board meeting attended and (4) an Additional Fee, as defined, for every committee meeting of the Board of Directors attended. The Nominal Fee and the Additional Fee may be paid in cash or in shares of Company’s common stock based on the closing market price of the Company’s common stock on the date of the meeting. The fair value of the options was estimated at $313,296 with an exercise price of $1.01, using the Black-Scholes valuation model and the following assumptions: (1) a weighted average expected volatility of 131.2% based on historical volatility; (2) a weighted average interest rate of 1.03% (3) a weighted average expected life of 3.5 years and (4) a zero dividend yield. The stock price was determined based on the closing market price on the date of the grant. The fair value of the options is recorded in compensation expense for the three months and nine months ended September 30, 2014.

 

On July 11, 2014, the Company entered into a contract with Mr. Donald Engel to serve as a member of the Company’s Board of Directors which was approved by the Board of Directors on July 30, 2014. The terms of the agreement require the Company to (1) issue options to Mr. Engel to purchase 300,000 shares of the Company’s common stock at a $1.00 per share on the date of the Board of Directors approval to his appointment to the Company’s Board of Directors which vest immediately and expire five years from date of issuance; (2) options to purchase 5,000 shares of the Company’s stock which vest immediately and expire five years from the date of issuance at an exercise price equal $0.01in excess of the closing price of the Company’s common stock on the date of the meeting and a Nominal Fee, as defined, for every board meeting attended and (3) an Additional Fee, as defined, for every committee meeting of the Board of Directors attended. The Nominal Fee and the Additional Fee may be paid in cash or in shares of Company’s common stock based on the closing market price of the Company’s common stock on the date of the meeting. . The fair value of the options was estimated at $61,295 using the Black-Scholes valuation model and the following assumptions: (1) a weighted average expected volatility of 93.6% based on historical volatility; (2) a weighted average interest rate of 0.66% (3) a weighted average expected life of 2.5 years and (4) a zero dividend yield. The stock price was determined based on the closing market price on the date of the grant. The fair value of the options is recorded in compensation expense for the three months and nine months ended September 30, 2014.

 

During the nine months ended September 30, 2014, the Company issued options to purchase 165,000 shares of the Company’s common stock to Board members for attendance of Board of Directors meetings. The fair value of the options was estimated at $160,714 using the Black-Scholes valuation model and the following assumptions: (1) a weighted average expected volatility range of 129.9% – 141.2% based on historical volatility; (2) a weighted average interest rate range of 0.97% - 1.77% (3) a weighted average expected life of 3.5 -5 years and (4) zero dividend yield. The stock price was determined based on the closing price on the respective dates of the grant and the exercise price ranged from $0.54 - $1.56. The option vesting range is from date of issuance to two years and all options expire five years from date of issuance. Additionally, the Company accrued a Nominal Fee, as defined, pertaining to Board member attendance of these meetings of $7,500 as September 30, 2014. The fair value of the options is recorded in compensation expense for the three months and nine months ended September 30, 2014.

 

On May 14, 2014, the Company’s Board of Directors authorized the issuance of options to purchase 2,178,000 shares of the Company’s common stock to 36 employees and two consultants of the Company. The options vest on May 14, 2017 and expire on May 14, 2019. The fair value of the options was estimated at $1,570,910 using the Black-Scholes valuation model and the following assumptions: (1) a weighted average expected volatility of 130.7% based on historical volatility; (2) a weighted average interest rate of 1.00% (3) a weighted average expected life of 4 years and (4) a zero dividend yield. The stock price was determined based on the closing market price on the date of the grant and the exercise price is $1.00.

 

The following table accounts for the Company’s Plans option activity through September 30, 2014:

 

		Number of Shares			Weighted Average Exercise Price
Options outstanding at January 1, 2014			4,943,665		$	1.43
Options granted			3,043,000		$	0.96
Options exercised			—		$	—
Options canceled/forfeited			(337,000)		$	1.44
Options outstanding at September 30, 2014			7,649,665		$	1.24

 

Options outstanding as of September 30, 2014:
Range of Exercise Price		Number Outstanding			Weighted Average Contractual Life (in years)			Weighted Average Exercise Price
$0.50 - $1.61			7,649,665			4.20		$	1.24

 

Options outstanding as of December 31, 2013:
Range of Exercise Price		Number Outstanding			Weighted Average Contractual Life (in years)			Weighted Average Exercise Price
$0.50 - $1.61			4,943,665			4.09		$	1.43

 

As of September 30, 2014, there are 7,649,665 options outstanding of which 2,921,665 options are exercisable. As of December 31, 2013, there were 4,943,665 options outstanding of which 2,154,665 were exercisable. The aggregate intrinsic value of the options outstanding as of September 30, 2014 and December 31, 2013 based on a closing price of $0.60 and $1.25, respectively, was $23,900 and $118,800, respectively. As of September 30, 2014, there was $3,165,095 of unrecognized expense that will be recognized over 2.31 years.

 

Warrant Issuances

 

On May 2, 2014, the Company obtained commitments through December 31, 2014 and through January 2, 2015 from four shareholders to finance up to $6,250,000. In conjunction with the commitment, the Company issued warrants to purchase a total of 3,869,048 shares of the Company’s common stock at $1.05 per share which vest immediately and expire in five years. The fair value of the warrants was estimated at $726,868 and recorded as operating expense for the three months and nine months ended September 30, 2014 using the multinomial lattice valuation model. The stock price was determined based on the closing market price on the date of the commitment letter. In addition, the Company would be required to issue additional warrants to the shareholders in the event, the Company exercises the commitment. The commitment amount may be reduced by the issuance of long term debt or the sale of common stock during the remainder of calendar year 2014. The Company paid placement agents $131,250 in commissions which is also recorded as operating expense for the nine months ended September 30, 2014. As of January 2, 2015, no funds were drawn on the commitments and the commitments expired and were not renewed.

 

On May 10, 2014, a firm executed an agreement to grant the Company exclusive rights to install charging stations on certain of the firm’s properties. In consideration, the Company would issue warrants to purchase a total of 2,607,712 shares of the Company’s common stock at $0.97 per share based on the closing price on the execution date. As of September 24, 2014, the closing conditions in the agreement had been met, the agreement had been countersigned by the Company and the warrants been issued. The fair value of the warrants was estimated at $321,877 and recorded as operating expense for the three months and nine months ended September 30, 2014 using the multinomial lattice valuation model.

 

In conjunction with the offer to exchange derivative liability warrants for non derivative liability warrants during the quarter ended September 30, 2014, 450,000 warrants were exchanged and 112,500 inducement warrants were issued as further described in Note 10. The fair value of the non derivative liability warrants was estimated at $56,261 and the inducement warrants were estimated at $14,065 respectively, both using the multinomial lattice model. The premium warrant fair value is recorded as Other Expense for the three months ended September 30, 2014. During the nine months ended September 30, 2014, 9,881,418 warrants were exchanged and 2,626,069 inducement warrants were issued. The fair value of the non derivative liability warrants was estimated at $1,434,112 and the inducement warrants were estimated at $382,753 respectively, both using the multinomial lattice model.

 

On August 8, 2014, the Company issued 714,209 warrants to the former Beam members, payable as of June 30, 2014, at a fair value estimated at $247,800 as more fully described in Note 11-Warrant Payable.

 

The assumptions used in connection with the valuation of warrants using the multinomial lattice model were as follows:

 

			September 30, 2014
Number of shares underlying the warrants				9,992,296
Exercise price			$	1.00 - $1.05
Volatility				87.38	%
Risk free interest rate				1.07	%
Expected dividend yield				0.0	%
Expected warrant life (years)				4.19 - 4.41
Stock price			$	0.60

The following table accounts for the Company’s warrant activity for the period of January 1, 2014 through September 30, 2014:

 

		Number of Shares			Weighted Average Exercise Price
Warrants outstanding at January 1, 2014			37,895,137		$	1.42
Warrants granted			9,817,038		$	1.01
Warrants exercised			(959,000)		$	0.69
Warrants canceled/forfeited			(1,342,170)		$	1.63
Warrants outstanding at September 30, 2014			45,411,005		$	1.34

 

The number of warrants exercisable as of September 30, 2014 was 43,394,205 and 37,873,337 were exercisable as of December 31, 2013.

 

Warrants outstanding as of September 30, 2014:
Range of Exercise Price		Number Outstanding			Weighted Average Contractual Life (in years)			Weighted Average Exercise Price
$1.00 - $30.00			45,411,005			2.73		$	1.34

 

Warrants exercisable as of September 30, 2014:
Range of Exercise Price		Number Outstanding			Weighted Average Contractual Life (in years)			Weighted Average Exercise Price
$1.00 - $30.00			43,394,205			2.72		$	1.34

 

Warrants outstanding as of December 31, 2013:
Range of Exercise Price		Number Outstanding			Weighted Average Contractual Life (in years)			Weighted Average Exercise Price
$0.50 - $30.00			37,895,137			3.69		$	1.42

 

Warrants exercisable as of December 31, 2013:
Range of Exercise Price		Number Outstanding			Weighted Average Contractual Life (in years)			Weighted Average Exercise Price
$0.50 - $30.00			37,873,337			3.69		$	1.42

 

 

The following table summarizes options and warrants for compensation, warrants and fees:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2014			2013			2014			2013
Options		$	570,342		$	1,217,191		$	1,880,958		$	2,262,500
Warrants			326,431			4,536			335,390			5,647,576
Common stock			—			379,498			—			2,428,861
Total		$	896,773		$	1,601,225		$	2,216,348		$	10,338,937

 

The Company recognized compensation cost related to the options and warrants for the three months and nine months ended September 30, 2014 and 2013 of $910,837, $4,602,653, $3,325,968 and $7,910,076, respectively.