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
3 Months Ended
Mar. 31, 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 months ended March 31, 2017 and 2016, which are included in the accompanying condensed consolidated statements of operations, in the following categories:

   
2017
   
2016
 
             
Selling, general and administrative expenses
 
$
133,043
   
$
45,324
 
Research and development expenses
   
     
2,560
 
                 
    Total stock-based compensation
 
$
133,043
   
$
47,884
 

The Company recognized total stock-based compensation expense during the three months ended March 31, 2017 and 2016, from the following categories:

   
2017
   
2016
 
             
Restricted stock awards
 
$
30,431
   
$
 
Stock options awards under the Plan
   
63,806
     
47,884
 
Non-qualified stock option awards
   
38,806
     
 
                 
    Total stock-based compensation
 
$
133,043
   
$
47,884
 


Restricted stock awards:
A summary of the Company's restricted stock activity in the three months ended March 31, 2017 is presented here:
   
Number of Shares
   
Weighted
Average
Grant-Date Fair Value
 
             
Outstanding at January 1, 2017
   
-
   
$
-
 
     Granted
   
165,000
     
3.13
 
     Forfeited
   
(20,000
)
   
3.13
 
Outstanding at March 31, 2017
   
145,000
   
$
3.13
 
                 
Vested at March 31, 2017
   
6,042
   
$
3.13
 

During the three months ended March 31, 2017, the Company granted 165,000 restricted shares to members of its Board of Directors. Upon the resignation of a Director, 20,000 shares were subsequently forfeited. The weighted-average fair value of restricted shares granted during the three months ended March 31, 2017 was $3.13 per share based upon the share price as of the date of grant. The total fair value of restricted stock granted during the three months ended March 31, 2017 was approximately $516,000.
 
The value of restricted stock grants are measured based on their fair value on the date of grant and amortized over the vesting period of twenty-four months. As of March 31, 2017, there was approximately $423,000 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 1.9 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 three months ended March 31, 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 did not grant any stock-based compensation to employees, directors or consultants for the three month periods ended March 31, 2017 or 2016.

A summary of activity under the Plan for the three months ended March 31, 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
   
-
     
-
         
     Exercised
   
-
     
-
         
     Forfeited
   
(14,836
)
   
42.86
         
Outstanding at March 31, 2017
   
551,911
   
$
19.85
     
7.1
   
$
270,636
 
                                 
Exercisable at March 31, 2017
   
472,911
   
$
22.68
     
6.7
   
$
184,486
 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on March 31, 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 March 31, 2017.

During the three months ended March 31, 2017, a total of 14,836 options that were granted under the Plan were forfeited, of which 836 were vested and 14,000 were unvested. The vested options were exercisable at an average of $710.40 per share, the unvested options were exercisable at an average of $3.00 per share. During the three months ended March 31, 2016, a total of 7,382 options that were granted under the Plan were forfeited, of which 3,762 were vested and 3,620 were unvested. The vested options were exercisable at an average of $26.61 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, directors and consultants that vested and became exercisable during the three months ended March 31, 2017 and 2016, was approximately $51,000 and $127,000, respectively.   Based upon the Company's experience, approximately 80% of the outstanding nonvested stock options, or approximately 63,000 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 three months ended March 31, 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
   
-
     
-
     
-
 
     Vested
   
(4,738
)
   
15.12
     
10.74
 
     Forfeited
   
(14,000
)
   
3.00
     
2.25
 
                         
Nonvested at March 31, 2017
   
79,000
   
$
2.91
   
$
2.15
 

At March 31, 2017, based upon employee, officer, director and consultant options granted under the Plan to that point, there was approximately $45,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of one year.

Other common stock purchase options and warrants:

As of March 31, 2017, in addition to the Plan options discussed above, the Company had outstanding 897,003 non-qualified options and warrants in connection with warrants issued with offerings, an officer's employment, and options issued to six new employees, hired in connection with the Company's acquisition of BDI that were not issued under the Plan.

During the three month periods ended March 31, 2017 and 2016 no options were granted outside of the Plan.   Operating expenses for the three months ended March 31, 2017 included $38,806 related to stock-based compensation and the three months ended March 31, 2016 did not include any value related to stock-based compensation of non-qualified options and warrants.

In March 2017, the Company completed a $1 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 400,000 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 three months ended March 31, 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
   
400,000
     
3.50
             
     Exercised
   
-
     
-
             
     Forfeited
   
(30,000
)
   
3.78
             
                             
Outstanding at March 31, 2017
   
897,003
   
$
9.29
     
2.5
   
$
214,300
 
                                 
Exercisable at March 31, 2017
   
464,503
   
$
15.47
     
1.0
   
$
7,150
 

During the three months ended March 31, 2017 and 2016, no warrants were exercised.  Included at March 31, 2017 in the 897,003 total outstanding options are 829,503 non-compensatory rights, exercisable at an average of $9.66 per common share, expiring through May 2020, granted in connection with public offerings, and 67,500 rights exercisable at an average of $4.65 per common share, expiring through September 2021, issued under compensatory arrangements.

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on March 31, 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 March 31, 2017.