Quarterly report pursuant to Section 13 or 15(d)

NOTE 9 - OPTIONS, RESTRICTED STOCK UNITS AND WARRANTS

v3.5.0.2
NOTE 9 - OPTIONS, RESTRICTED STOCK UNITS AND WARRANTS
9 Months Ended
Sep. 30, 2016
Disclosure Text Block Supplement [Abstract]  
Shareholders' Equity and Share-based Payments [Text Block]
NOTE 9 – OPTIONS, RESTRICTED STOCK UNITS AND WARRANTS

Options

On October 19, 2012, the Company’s Board of Directors approved the 2012 Equity Incentive Plan (“the “Plan) and terminated the Long-Term Incentive Plan (the “2011 Plan”). The Plan provides for the issuance of options to purchase up to 11,686,123 (as amended) shares of the Company’s common stock to officers, directors, employees and consultants of the Company (as amended). Under the terms of the Plan the Company may issue Incentive Stock Options as defined by the Internal Revenue Code to employees of the Company only and nonstatutory options. The Board of Directors of the Company or a committee thereof administers the Plan and determines the exercise price, vesting and expiration period of the grants under the Plan.

However, the exercise price of an Incentive Stock Option should not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more stockholder and 100% of fair value for a grantee who is not 10% stockholder. The fair value of the common stock is determined based on the quoted market price or in absence of such quoted market price, by the administrator in good faith.

Additionally, the vesting period of the grants under the Plan will be determined by the administrator, in its sole discretion, with an expiration period of not more than ten years. The Company reserved 227,388 shares of its common stock for future issuance under the terms of the Plan.

During the nine months ended September 30, 2016, the Company granted an aggregate of 750,000, net of 100,000 canceled, options to officers, directors and key consultants.

During the nine months ended September 30, 2016, the Company granted an aggregate of 873,545 stock grants to officers, employees and key consultants under the plan. See Note 8.

The following table presents information related to stock options at September 30, 2016:

Options Outstanding
 
Options Exercisable
 
       
Weighted
     
       
Average
 
Exercisable
 
Exercise
 
Number of
 
Remaining Life
 
Number of
 
Price
 
Options
 
In Years
 
Options
 
 
$
1.01-2.00
     
2,139,642
     
6.8
     
1,572,642
 
   
2.01-3.00
     
5,650,548
     
5.6
     
4,872,457
 
   
3.01-4.00
     
300,000
     
8.5
     
300,000
 
           
8,090,190
     
6.0
     
6,745,099
 

A summary of the stock option activity and related information for the Plan for the nine months ended September 30, 2016 is as follows:

 
             
Weighted-Average
       
 
       
Weighted-Average
   
Remaining
   
Aggregate
 
 
 
Shares
   
Exercise Price
   
Contractual Term
   
Intrinsic Value
 
Outstanding at January 1, 2016
   
7,780,190
   
$
2.30
     
6.4
   
$
-
 
Grants
   
750,000
     
1.80
     
10.0
     
-
 
Exercised
   
-
                         
Forfeiture/Canceled
   
(440,000
)
 
$
2.24
     
-
     
-
 
Outstanding at September 30, 2016
   
8,090,190
   
$
2.26
     
6.0
   
$
12,350
 
Exercisable at September 30, 2016
   
6,745,099
   
$
2.31
     
6.0
   
$
3,563
 

The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s stock price of $1.52 as of September 30, 2016, which would have been received by the option holders had those option holders exercised their options as of that date.

Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from using the Company’s historical stock prices for 2016. Prior to 2016, the Company derived the volatility figure from an index of historical stock prices for comparable entities. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of options based on the contractual life of options for non-employees. For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification.

The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. 

In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

The Company estimated forfeitures related to option grants at a weighted average annual rate of  0% per year, as the Company does not yet have adequate historical data, for options granted during the nine months ended September 30, 2016 and 2015.

The following assumptions were used in determining the fair value of employee and vesting non-employee options during the nine months ended September 30, 2016 and 2015:

 
September 30,
2016
 
September 30,
2015
 
Risk-free interest rate
 
 
1.08% - 1.69
%
 
 
1.19% - 2.37
%
Dividend yield
 
 
0
%
 
 
0
%
Stock price volatility
 
 
122.82
%
 
 
118.56% -130.30
%
Expected life
5 – 10 years
 
7-10 years
 
Weighted average grant date fair value
 
$
1.50
 
 
$
2.41
 

During the nine months ended September 30, 2016, the Company granted an aggregate of  685,000 options to purchase the Company stock in connection with the services rendered at the exercise price of $1.84 per share for a term of ten years, vesting immediately. In September 2016, the Company issued 83,545 shares of its common stock in exchange for 100,000 common stock options previously issued in May 2016 under the terms of its 2012 Equity Plan.  The equality of the fair value was determined using the Black Scholes option pricing model with the following assumptions:  dividend yield: 0%; volatility: 122.82%; risk free rate: 1.08%, term: 5 years and fair value of the Company’s common stock: $1.84.

On August 24, 2016, the Company granted 65,000 options to purchase the Company stock in connection with the services rendered at the exercise price of $1.33 per share for a term of ten years with 12,500 vesting immediately; 37,500 vesting quarterly beginning September 14, 2016 through December 14, 2017 and 15,000 performance contingent.

The fair value of all options vesting during the three and nine months ended September 30, 2016 of $218,085 and $2,512,886, respectively, and during the three and nine months ended September 30, 2015 of $836,425 and $3,793,152, respectively, was charged to current period operations.  Unrecognized compensation expense of $406,988 at September 30, 2016 will be expensed in future periods.

Restricted Stock

The following table summarizes the restricted stock activity for the nine months ended September 30, 2016:

Restricted shares issued as of January 1, 2016
   
175,000
 
Granted
   
180,000
 
Vested
   
(175,000
)
Total restricted shares issued as of September 30, 2016
   
180,000
 
Vested restricted shares as of September 30, 2016
   
-
 
Unvested restricted shares as of September 30, 2016
   
180,000
 

On September 7, 2016, the Company granted 180,000 restricted stock units (“RSU”) to a consultant vesting monthly over one year beginning October 7, 2016.

Stock based compensation expense related to restricted stock grants was $70,753 and $124,139 for the three months ended September 30, 2016, respectively; and $100,492 and $238,122 for the three and nine months ended September 30, 2015,  respectively. As of September 30, 2016, the stock-based compensation relating to restricted stock of $202,847 remain unamortized and is expected to be amortized over the remaining period of approximately 1 year.    

Warrants

The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at September 30, 2016: 

Exercise
   
Number
 
Expiration
Price
   
Outstanding
 
Date
$
0.001
     
383,320
 
January 2020
$
1.50
     
4,173,017
 
February 2018 to May 2020
$
1.84
     
35,076
 
January 2020
$
1.95
     
1,689,026
 
October 2018 to September 2019
$
2.00
     
100,000
 
August 2018
$
2.02
     
30,755
 
January 2020
$
2.10
     
38,572
 
June 2019
$
2.50
     
100,000
 
August 2018
$
2.75
     
228,720
 
August 2019 to September 2019
$
3.67
     
214,193
 
December 2018 to January 2019
$
3.75
     
1,340,556
 
April 2019 to March 2020
         
8,333,235
 
 

On February 9, 2016, the Company issued 25,000 warrants to purchase the Company’s common stock at $1.95 per share, expiring on February 9, 2019, in connection with the sale of the Company’s common stock. In addition, the Company issued 6,000 warrants to purchase the Company’s common stock at $1.50 per share, expiring February 9, 2019 for placement agent services.

On March 9, 2016, the Company issued an aggregate of 100,000 warrants to purchase the Company’s common stock at $1.95 per share, expiring on March 9, 2019, in connection with the sale of the Company’s common stock. In addition, the Company issued 12,000 warrants to purchase the Company’s common stock at $1.50 per share, expiring March 9, 2019 for placement agent services.

On April 1, 2016, the Company issued an aggregate of 100,327 warrants to purchase the Company’s common stock at $1.95 per share, expiring on April 1, 2019, in connection with the sale of the Company’s common stock. In addition, the Company issued 18,040 warrants to purchase the Company’s common stock at $1.50 per share, expiring April 1, 2019 for placement agent services.

On April 19, 2016, the Company issued an aggregate of 84,980 warrants to purchase the Company’s common stock at $1.95 per share, expiring on April 19, 2019, in connection with the sale of the Company’s common stock. In addition, the Company issued 17,996 warrants to purchase the Company’s common stock at $1.50 per share, expiring April 19, 2019 for placement agent services.

On April 29, 2016, the Company issued an aggregate of 567,866 warrants to purchase the Company’s common stock at $1.95 per share, expiring on April 29, 2019, in connection with the sale of the Company’s common stock. In addition, the Company issued an aggregate of 96,256 warrants to purchase the Company’s common stock at $1.50 per share, expiring between October 23, 2018 through April 29, 2019 for placement agent services.

On June 1, 2016, the Company issued an aggregate of 38,572 warrants to purchase the Company’s common stock at $2.10 per share, expiring on June 1, 2019, in connection with the sale of the Company’s common stock.

On August 30, 2016, the Company issued an aggregate of 152,513 warrants to purchase the Company’s common stock at $1.95 per share, expiring on August 30, 2019, in connection with the sale of the Company’s common stock.

On September 19, 2016, the Company issued an aggregate of 35,000 warrants to purchase the Company’s common stock at $1.95 per share, expiring on September 19, 2019, in connection with the sale of the Company’s common stock.

Stock based compensation related to warrants issued for services was $641 and $56,930 for the three and nine months ended September 30, 2016, respectively; and $44,464 for the three and nine months ended September 30, 2015.

A summary of the warrant activity for the nine months ended September 30, 2016 is as follows:

 
             
Weighted-Average
       
 
       
Weighted-Average
   
Remaining
   
Aggregate
 
 
 
Shares
   
Exercise Price
   
Contractual Term
   
Intrinsic Value
 
Outstanding at January 1, 2016
   
7,078,685
   
$
2.02
     
3.0
     
497,933
 
Grants
   
1,254,550
     
1.90
     
2.5
     
-
 
Exercised
   
-
                         
Canceled
   
-
                         
Outstanding at September 30, 2016
   
8,333,235
   
$
2.00
     
2.3
   
$
665,723
 
 
                               
Vested and expected to vest at September 30, 2016
   
8,333,235
   
$
2.00
     
2.3
   
$
665,723
 
Exercisable at September 30, 2016
   
8,333,235
   
$
2.00
     
2.3
   
$
665,723
 

The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price of $1.52 as of September 30, 2016, which would have been received by the warrant holders had those warrant holders exercised their warrants as of that date.