Annual report pursuant to Section 13 and 15(d)

Stock options, warrants and restricted common stock

v3.19.1
Stock options, warrants and restricted common stock
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock options, warrants and restricted common stock
Note 11.  Stock options, warrants and restricted common stock:

The Company currently provides stock-based compensation to employees, directors and consultants, both under the Company's 2017 Equity Incentive Plan, as approved by the Company's shareholders on August 21, 2017 (the "Plan") and non-qualified options and warrants issued outside of the Plan. The Company's previous 2002 Stock Incentive Plan, as amended was replaced by the 2017 Plan with the 2002 Stock Incentive Plan continuing to govern outstanding grants and awards for 10,251 shares of restricted common stock, but no additional grants are to be made. The 2017 Plan was approved reserving 895,000 common shares 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. 

Stock-based Compensation:

The Company’s stock-based compensation expenses recognized during the years ended December 31, 2018 and 2017, were attributable to selling, general and administrative expenses, which are included in the accompanying consolidated statements of operations.
 
The Company recognized total stock-based compensation expense during the years ended December 31, 2018 and 2017, from the following categories:
 
   
Years Ended December 31,
 
   
2018
   
2017
 
Restricted stock awards under the Plan
 
$
3,971,916
   
$
1,714,116
 
Stock option awards under the Plan
   
688,490
     
875,696
 
    Total stock-based compensation
 
$
4,660,406
   
$
2,589,812
 
 
 
Restricted common stock awards:

A summary of the Company's restricted stock activity in the years ended December 31, 2018 and 2017 is as follows:

   
Number of Shares
   
Weighted Average Grant-Date
Fair Value
 
Unvested at January 1, 2017
   
-
   
$
-
 
Granted
   
863,000
   
$
5.39
 
Vested
   
(326,848
)
 
$
4.87
 
Forfeited
   
(40,000
)
 
$
3.13
 
Unvested at December 31, 2017
   
496,152
   
$
5.97
 
Granted
   
431,000
   
$
10.46
 
Vested
   
(530,065
)
 
$
7.61
 
Forfeited
   
(301,148
)
 
$
7.68
 
Unvested at December 31, 2018
   
95,939
   
$
12.49
 

During the year ended December 31, 2018, a total of 431,000 shares of restricted common stock were granted, consisting of, 418,500 shares granted to officers, employees and non-employee directors of the Company, and 12,500 shares granted to a consultant for services. The total grant date fair value of restricted common stock granted during the year ended December 31, 2018 was approximately $4.5 million.

During the year ended December 31, 2018, forfeitures of restricted common stock totaled 301,148, which consisted of 293,481 shares forfeited due to the termination of the Company’s employees and officers, and 7,667 shares forfeited due to the resignation of a member of the Company’s board of directors.

The value of restricted common stock grants are measured based on their fair market value on the date of grant and amortized over their respective vesting periods. As of December 31, 2018, there was approximately $1,176,000 of unrecognized compensation cost related to unvested restricted common stock, which is expected to be recognized over a remaining weighted-average vesting period of approximately 1.0 year.

During the year ended December 31, 2017, the Company granted 863,000 restricted shares to members of its Board of Directors, Advisory Board members and officers. As of December 31, 2017, of the 326,848 restricted shares which had vested, 174,082 had been issued with 152,766 vested rights remaining to be issued. 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 10). The weighted-average grant date fair value of restricted shares granted during the year ended December 31, 2017 was $5.39 per share based upon the share price as of the date of grant. The total fair value of restricted stock granted, net of approximately $125,000 of forfeitures, during the year ended December 31, 2017 was approximately $4.7 million, including approximately $1.6 million which vested in the period.
 
Stock incentive Plan options:

The Company's determination of the estimated fair value of share-based payment awards on the date of grant under the Plan 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;
Legal term of the option – grants have legal 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 the period commencing in mid-2017 when the Company changed its strategic focus; and
Option exercise behaviors – based on actual and projected employee stock option exercises and forfeitures.
The Company accounts for forfeitures as they occur.

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, 2018 and 2017, as follows: 

 
Years Ended December 31,
 
2018
 
2017
Dividend yield
0%
 
0%
Expected price volatility
152% - 159%
 
15% - 95%
Risk free interest rate
2.49% - 2.96%
 
1.92-1.99%
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 years ended December 31, 2018 and 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
   
120,000
   
$
9.00
             
     Exercised
   
(50,800
)
 
$
2.94
             
     Forfeited
   
(516,414
)
 
$
22.16
             
Outstanding at December 31, 2017
   
119,533
   
$
9.02
     
9.8
   
$
2,316,000
 
     Granted
   
62,000
   
$
15.71
                 
     Exercised
   
(19,533
)
 
$
4.02
                 
     Forfeited
   
(100,000
)
 
$
10.00
                 
Outstanding at December 31, 2018
   
62,000
   
$
15.71
     
9.2
   
$
-
 
                                 
Exercisable at December 31, 2018
   
57,836
   
$
15.51
     
9.2
   
$
-
 
 
 
 
 
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, 2018 and 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 December 31, 2018 and 2017, respectively.
 
During the year ended December 31, 2018, the Company granted 62,000 stock options. Included in the 62,000 options granted were 50,000 stock options granted to an employee of the Company at an average exercise price of $18.50 per share, which vest monthly over a twelve month term, and 12,000 stock options granted to a consultant at an average exercise price of $4.09 per share, which vested at grant date. During the year ended December 31, 2017, 120,000 options were granted to directors and officers of the Company with a weighted average exercise price at grant date of $9.00 per option.  Included in the 120,000 options issued, were 20,000 options at an average exercise price of $4.02 per share which vest monthly over a twenty-four-month period and 100,000 options at an exercise price of $10.00 per share which were vested at grant date. All options were granted under the Company's Plan and expire ten years from the grant date. 

During the year ended December 31, 2018, 19,533 vested options granted under the Plan were exercised for cash proceeds of $78,522.
During the year ended December 31, 2017, 50,800 options outstanding under the Plan were exercised for cash proceeds of $149,136. The intrinsic value of the options exercised during the years ended December 31, 2018 and 2017, was approximately $51,000 and $171,000, respectively.

During the year ended December 31, 2018, 100,000 vested stock options granted to an officer of the Company were forfeited. During the year December 31, 2017, a total of 516,414 options granted under the Plan were forfeited with 515,578 forfeited as part of the equity rights terminations as described in Note 10 and 836 options terminated at the end of their term. Of the total forfeited, 459,414 options were vested, exercisable at an average exercise price of $24.55 and 57,000 were unvested, exercisable at an average exercise price of $2.92.

As of December 31, 2018, total stock-based compensation expense related to unvested options not yet recognized totaled approximately $58,000, which will be fully amortized in the first quarter of 2019.

Other common stock purchase warrants:

As of December 31, 2018, the Company had outstanding 1,671,113 warrants issued in connection with offerings.  The following is a summary of the change in outstanding warrants during the years ended December 31, 2018 and 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
   
4,451,113
   
$
17.03
             
Exercised for cash
   
(620,000
)
 
$
3.00
             
Exercised on a cashless basis
   
(2,244,147
)
 
$
-
             
Forfeited
   
(169,074
)
 
$
18.62
             
Outstanding at December 31, 2017
   
1,944,895
   
$
35.06
     
2.7
   
$
6,135,000
 
Granted
   
-
   
$
-
                 
Exercised
   
(113,009
)
 
$
3.50
                 
Forfeited
   
(160,773
)
 
$
10.88
                 
Outstanding at December 31, 2018
   
1,671,113
   
$
39.47
     
2.0
   
$
-
 
                                 
Exercisable at December 31, 2018
   
1,671,113
   
$
39.47
     
2.0
   
$
-
 

During the year ended December 31, 2018, 13,009 of the warrants issued in the May 2013 private offering were exercised on a cashless basis for the issuance of 3,215 shares of common stock, 100,000 warrants issued in March 2018, were exercised for cash proceeds of $350,000 and 160,773 warrants were forfeited.

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, 2018 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, 2018.

During the year ended December 31, 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.