Quarterly report pursuant to Section 13 or 15(d)

6. Stock Options and Warrants

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6. Stock Options and Warrants
9 Months Ended
Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]  
Stock Options and Warrants
6. Stock Options and Warrants 

 

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs.  Options vest and expire according to terms established at the grant date.

 

Options

 

The Company issues stock options to employees, directors and consultants under its 2004 Stock Option Plan (“Plan”), and in some cases issues stock options outside of the Plan. The Company could issue options under the Plan to acquire up to 7,000,000 shares of common stock as amended in May 2006.

 

From the Plan’s inception in 2004 up to September 30, 2014, the Company granted options to purchase 9,648,937 shares under the Plan, of which options to purchase 4,328,574 shares were subsequently cancelled or forfeited and made available for grants under the Plan. As of September 30, 2014, options to purchase 1,268,333 shares previously issued under the Plan had been exercised, options to purchase 4,052,030 shares were issued and outstanding and 1,679,637 shares were available to be granted under the Plan.

 

From the Company’s inception in February 1998 up to September 30, 2014, options to purchase a total of 37,050,000 shares were granted outside of the Plan, of which, options to purchase 17,485,000 shares were subsequently cancelled or forfeited. As of September 30, 2014, there were 16,705,000 options to purchase shares of common stock issued outside of the plan.

 

Employee options vest according to the terms of the specific grant and expire from 5 to 10 years from date of grant. Non-employee option grants have vested upon issuance and up to 2 years from the date of grant. The weighted-average, remaining contractual life of employee and non-employee options outstanding at September 30, 2014 was 6.4 years. Stock option activity for the period December 31, 2013 up to September 30, 2014, was as follows: 

 

    Options     Weighted Avg.
Exercise Price
 
December 31, 2013     20,309,908     $ 0.28  
Granted     557,122       0.85  
Exercised     (20,000 )     0.30  
Forfeited     (90,000 )     0.91  
September 30, 2014     20,757,030     $ 0.29  

  

The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest as of September 30, 2014 were as follows:

 

    Outstanding Options   Exercisable Options
Option
Exercise Price
Per Share
  Shares     Life
(Years)
  Weighted
Average Exercise
Price
  Shares     Weighted
Average Exercise
Price
$ 0.21 - $ 0.99     20,493,801     6.4   $0.28     18,229,381     $0.28
$ 1.00 - $ 1.99     263,229     5.5   $1.22     263,229     $1.22
      20,757,030     6.5   $0.29     18,492,610     $0.29

 

At September 30, 2014 the aggregate intrinsic value of the options outstanding was $8,069,165. Future unamortized compensation expense on the unvested outstanding options at September 30, 2014 is approximately $525,000.

 

During the nine month period ending September 30, 2014:

 

  The Company granted options to purchase 145,000 shares of common stock to employees. The options are exercisable at $0.75/share up to $0.99/share, of which, 20,000 options vested immediately and expire two years from the date of grant, and 125,000 options vest over two years and expire ten years from the date of grant. Total fair value of these options at grant date was approximately $70,600 using the Black-Scholes Option Pricing model with the following assumptions: life of 1 to 6 years; risk free interest rate of 0.12% to 1.66%; volatility of 123% to 125% and dividend yield of 0%.

 

  The Company granted options to purchase 412,122 shares of common stock to members of the Board of Directors under a new Board of Directors compensation plan adopted by the Company on May 6, 2014. The options are exercisable at $0.86/share and expire ten years from the date of grant. A total of 237,702 options vested immediately while the remaining 174,442 vest over twelve months from the date of grant. Total fair value of these options at grant date was approximately $299,930 using the Black-Scholes Option Pricing model with the following assumptions: life of 5 years; risk free interest rate of 1.68%; volatility of 123% and dividend yield of 0%.

 

  Options to acquire 20,000 shares of common stock were exercised for net proceeds of $6,000.

 

During the nine month periods ended September 30, 2014 and 2013, the Company recognized compensation costs based on the fair value of options that vested of $550,506 and $1,238,909 respectively.

 

Warrants

 

The following table summarizes certain information about the Company’s stock purchase warrants activity for the period starting December 31, 2013 up to September 30, 2014.

 

    Warrants     Weighted Avg.  
Exercise Price
 
December 31, 2013     11,763,966     $ 0.34  
Granted     490,000       0.77  
Exercised     (4,690,947 )     0.30  
Cancelled     (2,141,969 )     0.46  
Outstanding, September 30, 2014     5,421,050     $ 0.37  

 

The weighted average exercise prices, remaining contractual lives for warrants granted, exercisable, and expected to vest as of September 30, 2014 were as follows:

 

    Outstanding Warrants   Exercisable Warrants
Warrant
Exercise Price Per Share
  Shares     Life
(Years)
  Weighted
Average Exercise
Price
  Shares     Weighted
Average Exercise
Price
$ 0.25 - $ 0.99     5,301,050     3.5   $0.35     4,981,050     $0.33
$ 1.00 - $ 1.99     120,000     0.3   $1.01     120,000     $1.01
      5,421,050     3.1   $0.37     5,101,050     $0.34

 

At September 30, 2014, the aggregate intrinsic value of the warrants outstanding was $1,701,384. Future unamortized compensation expense on the unvested outstanding warrants at September 30, 2014 is approximately $179,000.

 

During the nine month period ending September 30, 2014:

 

  Warrants to acquire 4,690,947 shares of common stock were exercised resulting in proceeds of $1,407,284.

 

  The Company granted warrants to consultants to purchase 490,000 shares of its common stock. A total of 240,000 warrants have an exercise price of $0.67 up to $1.01 per share, vest over a period of six months to two years and will expire in two to ten years from the grant date. For the remaining 250,000 warrants, the exercise price will be determined on the date of vesting in an amount equal to the closing price of the Company’s common stock on the vesting date, vest over a two year period from the date of grant and expire two years from the date of grant. Total fair value of the warrants amounted to approximately $240,000 using the Black-Scholes Option Pricing model with the following average assumptions: risk-free interest rate of 0.47% to 1.62%; dividend yield of 0%; volatility of 58% to 122%; and an expected life of one to five years.

 

During the nine months ended September 30, 2014 and 2013, the Company recognized compensation costs of $46,411 and $158,157, respectively, based on the vested fair value of warrants granted to consultants and an employee.