Annual report pursuant to Section 13 and 15(d)

Stock options and warrants

v2.4.0.8
Stock options and warrants
12 Months Ended
Dec. 31, 2013
Stock options and warrants [Abstract]  
Stock options and warrants
Note 6.  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.  In 2013, the Company's shareholders approved amendments to the Plan to increase the number of shares reserved under the Plan from 1,487,205 to 1,912,205. 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;
·
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.
 
The Company recognized stock-based compensation during the years ended December 31, as follows:
 
   
2013
   
2012
   
2011
 
         
Stock options to employees, officers, and directors
 
$
1,436,572
   
$
833,351
   
$
1,200,118
 
Stock options to consultants for:
                       
  Investor relations activities
   
-
     
23,598
     
57,309
 
   APPY1 activities
   
1,293
     
38,460
     
54,304
 
  Animal health activities
   
-
     
5,752
     
24,446
 
 Total stock-based compensation
 
$
1,437,865
   
$
901,161
   
$
1,336,177
 
  
The above expenses are included in the accompanying Statements of Operations for the years ended December 31, in the following categories: 
 
   
2013
   
2012
   
2011
 
         
Selling, general and administrative expenses
 
$
1,298,942
   
$
862,701
   
$
1,281,873
 
Research and development expenses
   
138,923
     
38,460
     
54,304
 
 Total stock-based compensation
 
$
1,437,865
   
$
901,161
   
$
1,336,177
 
 
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:

   
2013
   
2012
   
2011
 
                   
Dividend yield
   
0%
     
0%
     
0%
 
Expected price volatility
   
127 to 128%
     
121 to 127%
     
119 to 120%
 
Risk free interest rate
   
.65 to .76%
     
.60 to  1.03%
     
1.32 to 2.14%
 
Expected term
 
5 years
   
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, 2013, is presented below:
 
   
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
 
                         
Outstanding at January 1, 2013
   
707,940
   
$
13.98
             
     Granted
   
525,603
     
2.06
             
     Exercised
   
-
     
-
             
     Forfeited
   
(15,278
   
24.68
             
                             
Outstanding at December 31, 2013
   
1,218,265
   
$
8.70
     
8.4
   
$
85,000
 
                                 
Exercisable at December 31, 2013
   
1,017,819
   
$
9.84
     
8.2
   
$
61,000
 

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, 2013 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, 2013.
 
During the year ended December 31, 2013, 525,603 options were granted under the Plan to employees, officers, directors and consultants with a weighted average exercise price at grant date of $2.06 per option.    Included in the 525,603 options issued, the non-employee directors were granted a total of 209,333 options at an average exercise price of $2.10 per share of which the majority vest quarterly over a one-year period, officers were granted 292,000 options at an average exercise price of $2.04 per share vesting over a twenty-four month period and employees were granted 24,270 options at an average exercise price of $2.02 per share, the majority of which vest over a twenty-four month period following grant. 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, 2013, a total of 15,278 options that were granted under the Plan to employees were forfeited, 6,086 of which were vested.  The options were exercisable at an average of $24.68 per share and were forfeited upon the employees' terminations from the Company or the expiration of the term of the options.  During the year ended December 31, 2013, no options were exercised.

During the year ended December 31, 2012, 540,378 options were granted under the Plan to employees, officers, directors and consultants with a weighted average exercise price at grant date of $2.29 per option.   Included in the 540,378 options issued, the independent directors were granted a total of 151,992 options at an average exercise price of $2.28 per share; 12,502 of these director options were granted at an exercise price of $4.26 per share, vesting over a three year period annually in arrears and 139,490 director options were granted at an exercise price of $2.10 per share vesting after one year. Officers were granted a total of 301,362 options at an average exercise price of $2.29 per share; 40,668 officer options were granted at an average exercise price of $3.50 per share, vesting over a twelve month period following grant and 260,694 officer options were granted at an exercise price of $2.10 per share, vesting after one year.  Employees were granted a total of 62,024 options at an average exercise price of $2.46 per share, 11,142 employee options at an average exercise price of $4.11 per share which vest over a twelve month period following grant and 50,882 options were granted at an exercise price of $2.10 per share, vesting after one year. Substantially all of the grants to officers and employees were awarded as retention incentive options.  The Company also issued 25,000 options to a consultant at an exercise price of $1.91 per share, vesting after ninety days. All options granted under the Company's 2002 Stock Incentive Plan expire ten years from the grant date.

During the year ended December 31, 2012, a total of 47,759 options that were granted under the Plan to directors, employees, including an officer, and consultants were forfeited, 23,283 of which were vested and 24,476 were unvested.  The options were exercisable at an average of $61.79 per share and were forfeited upon the employees' termination from the Company.   During the year ended December 31, 2012, no options were exercised.
 
During the year ended December 31, 2011, 52,267 stock options were granted under the Plan to employees, officers, directors, and consultants with a weighted average fair value at the grant date of $19.14 per option. Included in the 52,267 options issued, existing directors and officers were granted a total of 40,834 options at an exercise price of $19.02 per share and existing employees were granted 4,317 options at an exercise price of $18.30 per share, all vesting over a three-year period annually in arrears and expiring in ten years.  Four newly hired employees were granted a total of 450 options at $19.86 per share, all vesting over a three-year period annually in arrears and expiring in ten years.  The Company also issued 6,667 non-qualified options to a consultant at an exercise price of $20.40 per share which expire in ten years.   These non-qualified options are performance related with vesting tied to achieving specific APPY1 clinical and regulatory milestones. During the year ended December 31, 2011, no options were exercised.

During the year ended December 31, 2011, a total of 20,912 options granted under the Plan were forfeited, 11,402 of which were vested and 9,510 which were unvested.  The options were exercisable at an average of $52.50 per share and were forfeited upon the employees', officers and consultant's termination from the Company. During the year ended December 31, 2010, a total of 1,523 options were forfeited, 445 of which were vested and 1,078 were unvested.   The options were exercisable at an average of $79.50 per share and were forfeited upon the employees' terminations from the Company.

The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the years ended December 31, 2013, 2012 and 2011, was $1,963,000, $1,486,000 and $2,063,000, respectively.  Based upon the Company's experience, approximately 85% of the outstanding stock options, or approximately 170,000 options, are expected to vest in the future, under their terms. A summary of the activity of non-vested options under the Company's Plan to acquire common shares granted to employees, officers, directors and consultants during the year ended December 31, 2013 is presented below:

Nonvested Shares
 
Nonvested
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant Date
Fair Value
 
                   
Nonvested at January 1, 2013
   
508,435
   
$
3.70
   
$
3.07
 
     Granted
   
525,603
     
2.06
     
1.75
 
     Vested
   
(824,400
)
   
2.85
     
2.38
 
     Forfeited
   
(9,192
)
   
2.63
     
2.21
 
                         
Nonvested at December 31, 2013
   
200,446
   
$
2.95
   
$
2.48
 

At December 31, 2013, based upon employee, officer, director and consultant options granted to that point, there was approximately $269,000 additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of approximately one year.

Subsequent to December 31, 2013, 221,000 options were issued to non-employee directors under the Plan, exercisable at an average of $2.27 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, 2014, July 1, 2014, and October 1, 2014.

Subsequent to December 31, 2013, 406,600 options were issued to officers and employees under the Plan, exercisable at an average of $2.28 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.

Subsequent to December 31, 2013, 25,000 options were issued to a consultant under the Plan, exercisable at $2.38 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.

Other common stock purchase options and warrants:
 
As of December 31, 2013, in addition to the stock options issued under the Plan as discussed above, the Company had outstanding non-qualified options and warrants to acquire 4,622,505 shares of common stock. These options and warrants include those issued in connection with stock offerings, officers' employment inducement awards and investor relations consulting.

During the year ended December 31, 2013, warrants to acquire 4,025,000 shares of common stock were issued in connection with a public offering. Each warrant issued represents the right to acquire 0.35 of a share of common stock.  During the year ended December 31, 2013, no compensatory stock options were granted outside of the Plan.

The Company utilized assumptions in the estimation of the fair value of stock-based compensation for the years ended December 31, 2012 and 2011 as follows:
 
    2012     2011  
Dividend yield
    0 %     0 %
Expected price volatility
    121 %   119 to 145 %
  Risk free interest rate     0.74 %   1.20 to 1.95 %
Contractual term
  5 years     3 to 10 years  
 
Operating expenses for the years ended December 31, 2013, 2012 and 2011, include approximately $22,000, $71,000 and $92,000, respectively, related to non-qualified options and warrants.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the year ended December 31, 2013: 

  
 
Shares
Underlying
Options / Warrants
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
                         
Outstanding at January 1, 2013
   
598,507
   
$
5.01
         
     Granted
   
4,025,000
     
1.36
         
     Exercised
   
-
     
-
         
     Forfeited
   
(1,002
)
   
59.10
         
                         
Outstanding at December 31, 2013
   
4,622,505
   
$
1.82
 
4.3
 
$
3,139,500
 
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, 2013 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, 2013.

In May 2013, the Company completed a $14.4 million public offering of securities and, in connection with that offering, granted investors in the offering warrants to purchase a total of 4,025,000 shares of common stock at an exercise price of $1.36 per share and expiring in May 2018. Included at December 31, 2013 in the 4,622,505 total outstanding options and warrants are 4,597,505 non-compensatory rights granted in connection with public offerings and 25,000 rights issued under compensatory arrangements.

In June 2012, the Company completed a $12.2 million public offering of securities and in connection with that offering, granted the Underwriter warrants to purchase a total of 305,000 shares of common stock.  These warrants which are included in the above table are not exercisable until June 2013 at an exercise price of $2.50 per share, and expire in June 2017.  Included at December 31, 2012 in the 598,507 total outstanding options and warrants are 572,505 non-compensatory rights granted in connection with public offering and 26,002 rights issued under compensatory agreements.

During the year ended December 31, 2012, the Company hired a Senior Vice President and Chief Commercial Officer who previously had a consulting relationship with the Company.  As part of the employment arrangement, the Board of Directors approved an employment-inducement grant made outside of the Company's Plan, and granted 20,000 options which are exercisable at $3.42 per share. The options vest as to 50% of the total on the six month anniversary following the grant date and the remaining 50% vesting one-sixth monthly over months seven through twelve following the grant date. The options expire ten years from the grant date. During the year ended December 31, 2012, 2,004 vested options previously granted to an investor relations firm expired. 
 
During the year ended December 31, 2011, the Company hired a Vice President of Marketing and Business who previously had a consulting relationship with the Company.  As part of the employment arrangement, the Board approved an employment-inducement grant made outside of the Company's Stock 2002 Incentive Plan, and he was granted 6,667 options for services which are exercisable at $19.50 per share. The options were scheduled to vest equally over a three year period however they were forfeited upon the officer's termination from the Company in 2012. Also, during the year ended December 31, 2011, an investor relations firm was granted 5,000 warrants to purchase shares of common stock scheduled to vest equally over twelve months from the date of grant and are exercisable at $30.00 per share and expire in three years. During the year ended December 31, 2011, 4,584 investor relations consultant options expired of which 1,500 were exercisable at $360.00 per share, 1,251 options were exercisable at $180.30 per share, 1,667 options were exercisable at $167.10 per share and 166 options at $ $149.70 per share.  In addition 22,892 warrants granted at $144.60 per share in connection with the 2010 public registered direct offering expired.
 
During the years ended December 31, 2013, 2012 and 2011, no options granted outside of the Plan were exercised.  

The total fair value of stock options granted that vested and became exercisable during the years ended December 31, 2013, 2012 and 2011, was $24,000, $89,000 and $61,000, respectively.

A summary of the activity of nonvested, non-qualified options and warrants granted outside of the Plan in connection with employment and investor relations consulting services for the year ended December 31, 2013, is presented below:
 
Nonvested Shares
 
Nonvested
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant Date
Fair Value
 
                   
Nonvested at January 1, 2013
   
8,333
   
$
3.42
   
$
2.84
 
     Granted
   
-
     
-
     
-
 
     Vested
   
(8,333
)
   
3.42
     
2.84
 
     Forfeited
   
­-
     
-
     
-
 
                         
Nonvested at December 31, 2013
   
-
   
$
-
   
$
-
 
 
At December 31, 2013, there was no unrecognized cost for non-qualified options to be recorded in the future.