Quarterly report pursuant to Section 13 or 15(d)

Stock options and warrants

v2.4.0.8
Stock options and warrants
9 Months Ended
Sep. 30, 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. During June 2014, the Company's shareholders approved amendments to the Plan to increase the number of shares reserved under the Plan from 1,912,205 to 3,673,126. 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 periods ended September 30, as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

2014

   

2013

   

2014

   

2013

 
                         

Stock options to employees and directors

  $ 213,988     $ 332,150     $ 943,061     $ 1,226,304  

Stock options to consultants for APPY1 activities

    86       100       425       1,293  
                                 

    Total stock-based compensation

  $ 214,074     $ 332,250     $ 943,486     $ 1,227,597  

 

The above expenses are included in the accompanying Statements of Operations for the periods ended September 30, in the following categories:

 

   

Three Months Ended

   

Nine Months Ended

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Selling, general and administrative expenses

  $ 201,543     301,888     889,888     $ 1,111,623  

Research and development expenses

    12,531       30,362       53,598       115,974  
                                 

    Total stock-based compensation

  $ 214,074     $ 332,250     $ 943,486     $ 1,227,597  

 

 

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, as follows:

 

   

2014

 

2013

 
           

Dividend yield

    0 %     0 %

Expected price volatility

    96-126 %     127-128 %

Risk free interest rate

    1.52-1.74 %     0.65-0.76 %

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 nine months ended September 30, 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

    727,100       2.29              

     Exercised

    (39,079     2.09              

     Forfeited

    (41,561     30.01              
                             

Outstanding at September 30, 2014

    1,864,725     $ 5.87       8.4     $ -  
                                 

Exercisable at September 30, 2014

    1,428,956     $ 6.96       8.1     $ -  

 

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, 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 September 30, 2014.

 

During the nine months ended September 30, 2014, incentive stock options were exercised to purchase 39,079 common shares, resulting in total proceeds of approximately $82,000 and with a total intrinsic value when exercised of approximately $14,000.

 

During the nine months ended September 30, 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 nine months ended September 30, 2014

506,100
options were issued to officers employees and a consultant under the Plan, exercisable at an average of $2.29 per share. The options expire ten years from the date of grant. 431,100 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, and 75,000 vest annually in arrears over three years from grant date.

 


 

During the nine months ended September 30, 2014, a total of 41,561 options that were granted under the Plan were forfeited, of which 36,511 were vested and 5,050 were unvested. The vested options were exercisable at an average of $33.86 per share and the unvested options were exercisable at an average of $2.15 per share. During the nine months ended September 30, 2013, a total of 13,394 options that were granted under the Plan to employees were forfeited,6,086 of which were vested and 7,308 were unvested. The vested options were exercisable at an average of $57.98 per share and the unvested options were exercisable at an average of $2.46 per share. The options were forfeited upon the employees' terminations from the Company or the expiration of the term of the options.

 

The total fair value of stock options granted to employees, directors and consultants that vested and became exercisable during the nine months ended September 30, 2014 and 2013, was approximately $1,047,000 and $1,055,000, respectively.   Based upon the Company's experience, approximately 85% of the outstanding nonvested stock options, or approximately 370,000 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, 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

    727,100       2.29       1.89  

     Vested

        (486,727 )     2.57       2.15  

     Forfeited

    (5,050 )     2.15       1.77  
                         

Nonvested at September 30, 2014

    435,769     $ 2.27     $ 1.86  

 

At September 30, 2014, based upon employee, officer, director and consultant options granted under the Plan to that point, there was approximately $487,000 of additional unrecognized compensation cost related to stock options that will be recorded over a weighted average future period of  three years.

 

Other common stock purchase options and warrants:

 

As of September 30, 2014, in addition to the stock incentive plan options discussed above, the Company had outstanding 3,455,935 non-qualified options and warrants in connection with grants to officers that were not issued under the Plan and the issuance of warrants in connection with the Company's equity offerings.

 

During the nine month periods ended September 30, 2014 no stock options were granted outside of the Plan.During the nine month period ended September 30, 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

 

Operating expenses for the nine month period ended September 30, 2013, included approximately $22,000, for the stock-based compensation value of non-qualified options. All other periods included herein were zero.


Following is a summary of outstanding options and warrants that were issued outside of the Plan for the nine months ended September 30, 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

    (5,000     30.00            
                           

Outstanding and exercisable at September 30, 2014

    3,455,935     $ 1.93   3.5   $ 859,029  

 

During the nine months ended September 30, 2014, warrants from the May 2013 public offering were exercised to purchase 1,161,570 shares of common stock at $1.36 per share 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 September 30, 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 in fact exercised their options on September 30, 2014.

 

The total fair value of stock options previously granted to an officer that vested and became exercisable during the nine months ended September 30, 2014 and 2013, was zero and $24,000, respectively. At September 30, 2014, there was no unrecognized cost for non-qualified options that will be recorded in the future.