Quarterly report pursuant to Section 13 or 15(d)

Stock based compensation, options and warrants

v3.7.0.1
Stock based compensation, options and warrants
6 Months Ended
Jun. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock based compensation, options and warrants
Note 7. Stock based compensation, options and warrants:

Stock based compensation:

The Company recognized total expenses for stock-based compensation during the three and six months ended June 30, 2017 and 2016 which are included in the accompanying statements of operations, from the following categories:

   
Three Months Ended
 
Six Months Ended
 
   
2017
 
2016
 
2017
 
2016
 
                 
Restricted stock awards under the Plan
 
$
57,745
   
$
   
$
88,176
   
$
 
Stock option awards under the Plan
   
31,452
     
176,388
     
95,258
     
224,272
 
Non-qualified stock option awards
   
48,814
     
     
87,620
     
 
                                 
    Total stock-based compensation
 
$
138,011
   
$
176,388
   
$
271,054
   
$
224,272
 

Restricted stock awards:
A summary of the Company’s restricted stock activity in the six months ended June 30, 2017 is presented here:
 
   
Number of Shares
   
Weighted
Average
Grant-Date Fair Value
 
Total restricted shares
           
Outstanding at January 1, 2017
   
-
   
$
-
 
     Granted
   
197,000
     
3.26
 
     Forfeited
   
(40,000
)
   
3.13
 
Outstanding at June 30, 2017
   
157,000
   
$
3.30
 
Total vested restricted shares
               
Outstanding at January 1, 2017
   
-
   
$
-
 
     Vested
   
22,166
     
3.14
 
     Forfeited
   
(833
)
   
3.13
 
Vested at June 30, 2017
   
21,333
   
$
3.14
 

During the six months ended June 30, 2017, the Company granted 177,000 restricted shares to members of its Board of Directors and 20,000 restricted shares to an officer. Upon the separation of two Directors, 40,000 restricted shares were subsequently forfeited, including 833 restricted shares that were re-acquired by the Company as part of the equity rights terminations (see Note 6). The weighted-average fair value of restricted shares granted during the six months ended June 30, 2017 was $3.26 per share based upon the share price as of the date of grant. The total fair value of restricted stock granted during the six months ended June 30, 2017 was approximately $643,200.

The value of restricted stock grants are measured based on their fair value on the date of grant and amortized over their respective vesting periods, generally twenty-four months. As of June 30, 2017, there was approximately $435,200 of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of approximately 1.6 years.

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 November, 2016, the Company's shareholders approved amendments to the Plan to increase the number of shares reserved under the Plan from 709,141 to 895,000. 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:

·
Grant date exercise price – the closing market price of the Company's common stock on the date of the grant;
·
Estimated option term – based on historical experience with existing option holders;
·
Estimated dividend rates – based on historical and anticipated dividends over the life of the option;
·
Term of the option – based on historical experience, grants have lives of approximately 3-5 years;
·
Risk-free interest rates – with maturities that approximate the expected life of the options granted;
·
Calculated stock price volatility – calculated over the expected life of the options granted, which is calculated based on the daily closing price of the Company's common stock over a period equal to the expected term of the option; and
·
Option exercise behaviors – based on actual and projected employee stock option exercises and forfeitures.

During the six months ended June 30, 2017 and 2016, respectively, no options were exercised.  

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, 2017 and 2016 as follows:

 
2017
 
2016
 
         
Dividend yield
   
0
%
   
0
%
Expected price volatility
   
101
%
   
99
%
Risk free interest rate
   
1.92
%
   
1.20
%
Expected term
5 years
 
5 years
 

A summary of activity under the Plan for the six months ended June 30, 2017 is presented below:

   
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
 
                     
Outstanding at January 1, 2017
   
566,747
   
$
20.46
         
     Granted
   
20,000
     
4.02
         
     Exercised
   
-
     
-
         
     Forfeited
   
(495,414
)
   
22.98
         
Outstanding at June 30, 2017
   
91,333
   
$
3.16
     
7.3
   
$
84,290
 
                                 
Exercisable at June 30, 2017
   
59,000
   
$
2.93
     
6.1
   
$
68,070
 

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, 2017 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, 2017.

During the six months ended June 30, 2017, 20,000 options were issued to a director under the Plan, exercisable at $4.02 per share with a grant date fair value of $3.04 per share. The options expire ten years from the date of grant and vest monthly over a period of 24 months in arrears.

During the six months ended June 30, 2016, 77,000 options were issued to non-employee directors under the Plan, exercisable at an average of $2.89 per share. The options expire ten years from the date of grant and vest 50% upon on the date of grant, and 25% on each of July 1, 2016 and October 1, 2016. During the six months ended June 30, 2016, 150,000 options were issued to officers and employees under the Plan, exercisable at an average of $2.89 per share. The options expire ten years from the date of grant and vest 50% upon each of the six month and the one year anniversary of the grant date.

During the six months ended June 30, 2017, a total of 495,414 options granted under the Plan were forfeited as part of the equity rights terminations (see Note 6). Of the total, 438,414 options were vested, exercisable at an average exercise price of $25.59 and 57,000 were unvested, exercisable at an average exercise price of $2.92. During the six months ended June 30, 2016, a total of 25,445 options that were granted under the Plan were forfeited, of which 21,825 were vested and 3,620 were unvested. The vested options were exercisable at an average of $39.81 per share and the unvested options were exercisable at an average of $15.13 per share.

The total fair value of stock options granted to employees and directors that vested and became exercisable during the six months ended June 30, 2017 and 2016, was approximately $103,000 and $271,000, respectively.   Based upon the Company’s experience, approximately 80% of the outstanding nonvested stock options, or approximately 26,000 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, 2017 is presented below:

Nonvested Shares
 
Nonvested
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant Date
Fair Value
 
                   
Nonvested at January 1, 2017
   
97,738
   
$
3.51
   
$
2.58
 
     Granted
   
20,000
     
4.02
     
3.04
 
     Vested
   
(28,405
)
   
5.00
     
3.62
 
     Forfeited
   
(57,000
)
   
2.92
     
2.16
 
                         
Nonvested at June 30, 2017
   
32,333
   
$
3.58
   
$
2.70
 

At June 30, 2017, based upon employee and director options granted under the Plan to that point, there was approximately $63,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately 1.3 years.

Other common stock purchase options and warrants:

As of June 30, 2017, in addition to the Plan options discussed above, the Company had outstanding 1,272,929 non-qualified options and warrants in connection with warrants issued with offerings and options issued to certain employees, hired in connection with the Company's acquisition of BDI that were not issued under the Plan.

During the six month periods ended June 30, 2017 and 2016 no options were granted outside of the Plan.  Operating expenses for the three and six months ended June 30, 2017 included $48,814 and $87,620, respectively, related to stock-based compensation and the three and six months ended June 30, 2016 did not include any value related to stock-based compensation of non-qualified options and warrants.

In March 2017, the Company completed a $2.25 million private placement of securities and in connection with that offering, granted investors in the offering warrants which are classified as equity, exercisable after six-months, to purchase a total of 900,000 shares of common stock at an exercise price of $3.50 per share and expiring in May 2020 (see Note 6).

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the six months ended June 30, 2017:

   
Shares
Underlying
Options / Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
 
                         
Outstanding at January 1, 2017
   
527,003
   
$
13.36
             
     Granted
   
900,000
     
3.50
             
     Exercised
   
-
     
-
             
     Forfeited
   
(154,074
)
   
19.68
             
                             
Outstanding at June 30, 2017
   
1,272,929
   
$
5.58
     
2.3
   
$
526,500
 
                                 
Exercisable at June 30, 2017
   
372,929
   
$
10.59
     
0.4
   
$
4,500
 


During the six months ended June 30, 2017 and 2016, no warrants were exercised.  Included at June 30, 2017 in the 1,272,929 total outstanding options are 1,257,929 non-compensatory rights, exercisable at an average of $5.60 per common share, expiring through March 2020, granted in connection with public offerings, and 15,000 rights exercisable at an average of $3.78 per common share, expiring July 31, 2017, issued under compensatory arrangements.

During the six months ended June 30, 2017, a total of 154,074 options that were granted outside of the Plan were forfeited.  Of the total forfeited, 45,000 lapsed due to the individuals’ terminations from the Company, all of which were unvested. The unvested options were exercisable at an average of $3.78 per share. An additional 71,574 expired under their terms. The remaining 37,500, which were forfeited resulted from negotiated payments made to each holder to waive their rights to the outstanding options (See Note 6).
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, 2017 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, 2017.