Quarterly report pursuant to Section 13 or 15(d)

Stock based compensation, options and warrants

v3.8.0.1
Stock based compensation, options and warrants
9 Months Ended
Sep. 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 nine months ended September 30, 2017 and 2016 which are included in the accompanying statements of operations, from the following categories:

 
 
Three Months Ended
 
Nine Months Ended
 
 
 
2017
 
2016
 
2017
 
2016
 
 
               
Restricted stock awards under the Plan
 
$
100,396
   
$
   
$
188,572
   
$
 
Stock option awards under the Plan
   
8,172
     
137,367
     
103,430
     
361,639
 
Non-qualified stock option awards
   
     
6,820
     
87,620
     
6,820
 
 
                               
    Total stock-based compensation
 
$
108,568
   
$
144,187
   
$
379,622
   
$
368,459
 


Restricted stock awards:

A summary of the Company’s restricted stock activity in the nine months ended September 30, 2017 is presented here:
 
 
 
Number of Shares
   
Weighted
Average
Grant-Date Fair Value
 
             
Unvested at January 1, 2017
   
-
   
$
-
 
     Granted
   
422,000
     
3.69
 
     Vested
   
(42,622
)
   
3.20
 
     Forfeited
   
(40,000
)
   
3.13
 
Unvested at September 30, 2017
   
339,378
   
$
3.75
 

During the nine months ended September 30, 2017, the Company granted 402,000 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 grant date fair value of restricted shares granted during the nine months ended September 30, 2017 was $3.69 per share based upon the share price as of the date of grant. The total fair value of restricted stock granted, net of forfeitures, during the nine months ended September 30, 2017 was approximately $1,431,000, including approximately $136,000 which vested in the period.

The value of restricted stock grants are measured based on their fair market value on the date of grant and amortized over their respective vesting periods, generally twenty-four months. As of September 30, 2017, there was approximately $1,248,000 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 1.6 years.

Stock options:

The Company currently provides stock-based compensation to employees, directors and consultants, both under the Company's 2017 Equity Incentive Plan (the "Plan"), and with non-qualified options and warrants issued outside of the Plan. During August 2017, the Company's shareholders approved the Plan including reservation of 895,000 shares of common stock under the Plan. 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.
 
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 nine months ended September 30, 2017 and 2016 as follows:

 
2017
 
2016
 
 
 
 
 
 
Dividend yield
 
 
0
%
 
 
0
%
Expected price volatility
 
 
101
%
 
 
99-100
%
Risk free interest rate
 
 
1.92
%
 
 
1.20
%
Expected term
5 years
 
5 years
 

A summary of activity under the Plan for the nine months ended September 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
 
 
(34,000
 
 
2.89
 
 
 
 
 
     Forfeited
 
 
(495,414
)
 
 
22.98
 
 
 
 
 
Outstanding at September 30, 2017
 
 
57,333
 
 
$
3.32
 
 
 
9.1
 
 
$
105,700
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable at September 30, 2017
 
 
27,500
 
 
$
3.07
 
 
 
8.8
 
 
$
57,500
 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 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 September 30, 2017.

During the nine months ended September 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 in arrears, over a 24 month period.

During the nine months ended September 30, 2017, 34,000 options outstanding under the Plan were exercised generating $98,260 in cash proceeds. The 34,000 options exercised had a total intrinsic value when exercised of $53,180. During the nine months ended September 30, 2016, no options were exercised.

During the nine months ended September 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 nine months ended September 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 nine month and the one year anniversary of the grant date.

During the nine months ended September 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 nine months ended September 30, 2016, a total of 25,445 options that were granted under the Plan were forfeited as a result of option holders’ terminations from the Company, 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 nine months ended September 30, 2017 and 2016, was approximately $110,000 and $363,000, respectively.   Based upon the Company’s experience, approximately 80% of the outstanding September 30, 2017 nonvested stock options, or approximately 24,000 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 nine months ended September 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
   
(30,905
)
   
4.92
     
3.57
 
     Forfeited
   
(57,000
)
   
2.92
     
2.16
 
 
                       
Nonvested at September 30, 2017
   
29,833
   
$
3.54
   
$
2.67
 

At September 30, 2017, based upon employee and director options granted under the Plan to that point, there was approximately $54,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately one year.

Other common stock purchase options and warrants:

As of September 30, 2017, in addition to the Plan options discussed above, the Company had outstanding 3,157,929 warrants in connection with offerings that were not issued under the Plan.

In March 2017, the Company completed a total of $7.0 million in private placements of securities and in connection with those offerings, granted investors in the offerings, warrants which are classified as equity, exercisable six-months after issuance, to purchase a total of 2,800,000 shares of common stock, with 900,000 warrants at an exercise price of $3.50 per share and 1,900,000 warrants at an exercise price of $3.56 per share, all expiring in March 2020. See Note 6.

During the nine month period ended September 30, 2016, 95,000 options were granted outside of the Plan. During the nine months ended September 30, 2017, these 95,000 options were forfeited.  Operating expenses for the nine months ended September 30, 2017 and 2016, included $87,620 and $6,820, respectively, related to stock-based compensation.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the nine months ended September 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
 
 
2,800,000
 
 
 
3.54
 
 
 
 
 
 
 
     Exercised
 
 
-
 
 
 
-
 
 
 
 
 
 
 
     Forfeited
 
 
(169,074
)
 
 
18.62
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at September 30, 2017
 
 
3,157,929
 
 
$
4.37
 
 
 
2.3
 
 
$
4,534,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable at September 30, 2017
 
 
3,157,929
 
 
$
4.37
 
 
 
2.3
 
 
$
4,534,000
 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on September 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 September 30, 2017.

During the nine months ended September 30, 2017 and 2016, no warrants were exercised.  At September 30, 2017 the 3,157,959 total outstanding warrants are non-compensatory rights, exercisable at an average of $4.37 per common share, expiring through March 2020, granted in connection with offerings. No rights are outstanding that have been granted under compensatory arrangements.
 
During the nine months ended September 30, 2017, a total of 169,074 options and warrants that were granted outside of the Plan were forfeited.  Of the total forfeited, 71,574 warrants expired under their terms and 60,000 options lapsed (15,000 vested and 45,000 unvested) due to the holders’ terminations from the Company. The 60,000 options which lapsed were exercisable at an average of $3.78 per share. 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.