Quarterly report pursuant to Section 13 or 15(d)

Stock options and warrants

v2.4.0.8
Stock options and warrants
3 Months Ended
Mar. 31, 2014
Stock options and warrants [Abstract]  
Stock options and warrants
Note 6. Stock options and warrants:
 
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. 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 total expenses for stock-based compensation during the three-month periods ended March 31, as follows:

   
2014
   
2013
 
             
Stock options to employees and directors
 
$
402,839
   
$
483,625
 
Stock options to consultants for:
               
     APPY1 activities
   
182
     
597
 
                 
    Total stock-based compensation
 
$
 403,021
   
$
 484,222
 
 
The above expenses are included in the accompanying Statements of Operations for the three-month periods ended March 31, in the following categories:
 

   
2014
   
2013
 
             
Selling, general and administrative expenses
 
$
382,994
   
$
483,625
 
Research and development expenses
   
20,027
     
597
 
                 
    Total stock-based compensation
 
$
403,021
   
$
484,222
 

During the three months ended March 31, 2014 and 2013, respectively, no options were exercised.  

Subsequent to March 31, 2014, options were exercised to purchase 15,342 shares at $2.10 per share of common stock resulting in total proceeds of approximately $32,000.
 
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 three months ended March 31, as follows:
 
   
2014
 
2013
 
           
Dividend yield
    0 %     0 %
Expected price volatility
    96-126 %     127-128 %
Risk free interest rate
    1.52-1.70 %     0.72-0.76 %
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 three months ended March 31, 2014, is presented below:
 
   
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
 
                         
Outstanding at January 1, 2014
   
1,218,265
   
$
8.70
             
     Granted
   
652,100
     
2.28
             
     Exercised
   
-
     
-
             
     Forfeited
   
(23,605
   
33.35
             
                             
Outstanding at March 31, 2014
   
1,846,760
   
$
6.12
     
8.8
   
$
782,342
 
                                 
Exercisable at March 31, 2014
   
1,089,222
   
$
8.74
     
8.2
   
$
485,192
 
 
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, 2014 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, 2014.
 
During the three months ended March 31, 2014, 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.

During the three months ended March 31, 2014,  406,100 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.

During the three months ended March 31, 2014, 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.

During the three months ended March 31, 2014, a total of 23,605 options that were granted under the Plan were forfeited, of which 19,939 were vested and 3,667 were unvested. The vested options were exercisable at an average of $39.10 per share and the unvested options were exercisable at an average of $2.04 per share. During the three months ended March 31, 2013, a total of 6,644 options that were granted under the Plan to employees were forfeited, of which all were unvested. The options were exercisable at an average of $2.43 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, 2014 and 2013, was approximately $233,000 and $532,000, respectively.   Based upon the Company's experience, approximately 85% of the outstanding nonvested stock options, or approximately 646,000 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, 2014 is presented below:
 
Nonvested Shares
 
Nonvested
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant Date
Fair Value
 
                   
Nonvested at January 1, 2014
   
200,446
   
$
2.95
   
$
2.48
 
     Granted
   
652,100
     
2.28
     
1.91
 
     Vested
   
    (91,341
)
   
3.04
     
2.56
 
     Forfeited
   
(3,667
)
   
2.04
     
1.73
 
                         
Nonvested at March 31, 2014
   
757,538
   
$
2.36
   
$
1.98
 
 
At March 31, 2014, based upon employee, officer, director and consultant options granted under the Plan to that point, there was approximately $919,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of less than one year.

Other common stock purchase options and warrants:
 
As of March 31, 2014, in addition to the stock incentive plan options discussed above, the Company had outstanding 3,460,935 non-qualified options and warrants in connection with offering warrants, officers' employment and investor relations consulting that were not issued under the Plan.

During the three month periods ended March 31, 2014 and 2013, respectively, no stock options were granted outside of the Plan.  

Operating expenses for the three months ended March 31, 2014 and 2013, included zero and approximately $14,000, respectively, for the value of the non-qualified options and warrants.

Following is a summary of outstanding options and warrants that were issued outside of the Plan for the three months ended March 31, 2014:

  
 
Shares
Underlying
Options / Warrants
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
                         
Outstanding at January 1, 2014
   
4,622,505
   
$
1.82
         
     Granted
   
-
     
-
         
     Exercised
   
(1,161,570
   
1.36
         
     Forfeited
   
-
     
-
         
                         
Outstanding at March 31, 2014
   
3,460,935
   
$
1.97
 
4.0
 
$
3,676,206

During the three months ended March 31, 2014, warrants from the May 2013 public offering were exercised to purchase 1,161,570 shares at $1.36 per share of common stock resulting in total proceeds of approximately $1,580,000.

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, 2014 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, 2014.
 
The total fair value of stock options previously granted to an investor relations consulting firm and to certain officers that vested and became exercisable during the three months ended March 31, 2014 and 2013, was zero and $14,178, respectively. At March 31, 2014, there was no unrecognized cost for non-qualified options that will be recorded in the future.