Annual report pursuant to Section 13 and 15(d)

Stock options and warrants

v3.7.0.1
Stock options and warrants
12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock options and warrants
Note 7.  Stock options and warrants:

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:

·
The grant date exercise price – the closing market price of the Company's common stock on the date of the grant;
·
Expected option term – based on historical experience with existing option holders estimated at 3-5 years;
·
Estimated dividend rates – based on historical and anticipated dividends over the life of the option;
·
Term of the option – grants have lives of 10 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.

The Company recognized stock-based compensation totaling $545,549 and $1,143,078 during the years ended December 31, 2016 and 2015, respectively. These expenses are included in the accompanying Statements of Operations for the years ended December 31, in the following categories: 

   
2016
   
2015
 
         
Selling, general and administrative expenses
 
$
542,989
   
$
1,016,011
 
Research and development expenses
   
2,560
     
127,067
 
 Total stock-based compensation
 
$
545,549
   
$
1,143,078
 

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 years ended December 31, as follows:

   
2016
 
2015
 
           
Dividend yield
   
0
%
   
0
%
Expected price volatility
 
99 to 100%
     
93
%
Risk free interest rate
 
1.20 to 1.83%
     
1.39
%
Expected term
 
5 years
 
5 years
 

A summary of stock option activity under the Plan for options to employees, officers, directors and consultants, for the year ended December 31, 2016, is presented below:

   
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
 
                     
Outstanding at January 1, 2016
   
332,560
   
$
35.36
         
     Granted
   
259,666
     
2.90
         
     Exercised
   
-
     
-
         
     Forfeited
   
(25,479
)
   
36.88
         
                         
Outstanding at December 31, 2016
   
566,747
   
$
20.46
     
7.4
   
$
243,000
 
                                 
Exercisable at December 31, 2016
   
469,009
   
$
23.99
     
7.0
   
$
158,000
 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on December 31, 2016 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 December 31, 2016.

During the year ended December 31, 2016, 259,666 options were granted under the Plan to employees, officers, directors and consultants with a weighted average exercise price at grant date of $2.90 per option.  Included in the 259,666 options issued, the non-employee directors were granted a total of 109,666 options at an average exercise price of $2.92 per share of which the majority vest quarterly over a one-year period, officers were granted 128,000 options at an exercise price of $2.89 per share vesting over a one year period and employees were granted 2,000 options at an exercise price of $2.89 per share, vesting over a one year period, a consultant was granted 20,000 options at an exercise price of $2.89 per share, vesting over a one year period. All options were granted under the Company's 2002 Stock Incentive Plan and expire ten years from the grant date. 

 
During the year ended December 31, 2016, a total of 25,479 options that were granted under the Plan were forfeited, of which 21,859 were vested and 3,620 were unvested. The vested options were exercisable at an average of $40.49 per share and the unvested options were exercisable at an average of $15.13 per share.

 
During the year ended December 31, 2015, 136,813 options were granted under the Plan to employees, officers, and directors with an exercise price of $15.12.  Included were, 43,000 options were issued to non-employee directors under the Plan, with an exercise price of $15.12 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, 2015, July 1, 2015, and October 1, 2015.  During the year ended December 31, 2015, 93,813 options were issued to officers and employees under the Plan, exercisable at an average of $15.12 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 year ended December 31, 2015, a total of 36,099 options that were granted under the Plan were forfeited, of which 7,894 were vested and 28,205 were unvested. The vested options were exercisable at an average of $72.32 per share and the unvested options were exercisable at an average of $16.48 per share.

 
The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the years ended December 31, 2016 and 2015, was $646,000 and $1,344,000, respectively.  Based upon the Company's experience, approximately 80% of the outstanding nonvested stock options, or approximately 78,000 options, are expected to vest in the future, under their terms. A summary of the activity of nonvested options under the Company's Plan to acquire common shares granted to employees, officers, directors and consultants during the year ended December 31, 2016 is presented below:

Nonvested Shares
 
Nonvested
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant Date
Fair Value
 
                   
Nonvested at January 1, 2016
   
33,336
   
$
15.54
   
$
11.41
 
     Granted
   
259,666
     
2.90
     
2.15
 
     Vested
   
(191,644
)
   
4.56
     
3.37
 
     Forfeited
   
(3,620
)
   
15.13
     
10.75
 
                         
Nonvested at December 31, 2016
   
97,738
   
$
3.51
   
$
2.58
 

At December 31, 2016, based upon employee, officer, director and consultant options granted, there was approximately $133,000 additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately three-quarters of one year.

Other common stock purchase options and warrants:

As of December 31, 2016, in addition to the stock options issued under the Plan as discussed above, the Company had outstanding non-qualified options and warrants to acquire 527,003 shares of common stock. These options and warrants include those issued in connection with stock offerings, officers' employment inducement awards and investor relations consulting.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the year ended December 31, 2016: 

   
Shares
Underlying
Options / Warrants
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
                     
Outstanding at January 1, 2016
   
432,003
   
$
15.47
         
     Granted
   
95,000
     
3.78
         
     Exercised
   
     
         
     Forfeited
   
     
         
                         
Outstanding at December 31, 2016
   
527,003
   
$
13.36
 
2.8
 
$
6,000
                         
Exercisable at December 31, 2016
   
432,003
   
$
15.47
 
1.2
 
$

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on December 31, 2016 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 December 31, 2016.
 
Included at December 31, 2016 in the 527,003 total outstanding options and warrants are 429,503 non-compensatory warrants, exercisable at an average of $15.40 per common share, expiring through May 2018, granted in connection with public offerings and 97,500 options, exercisable at $4.38 per common share, expiring through September 2026, issued under compensatory arrangements.  

 
During the year ended December 31, 2016, 95,000 options were granted outside of the Plan to certain employees who worked at BDI.  The options are exercisable at a $3.78 per share, they 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. For the year ended December 31, 2016, there was approximately $56,000 in stock-based compensation included in operating expenses related to other common stock purchase options and warrants. At December 31, 2016, based upon compensatory options granted outside of the Plan, there was approximately $157,000 additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately one year.

During the year ended December 31, 2015 no stock options were granted outside of the Plan.