Annual report pursuant to Section 13 and 15(d)

8. Stock Options and Warrants

v3.7.0.1
8. Stock Options and Warrants
12 Months Ended
Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]  
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 and warrants vest and expire according to terms established at the grant date.

 

Options

 

Employee options vest according to the terms of the specific grant and expire from 5 to 10 years from date of grant. The weighted-average, remaining contractual life of employee and Non-employee options outstanding at December 31, 2016 was 5.2 years. Stock option activity for the period January 1, 2015 to December 31, 2016, was as follows:

 

   

Weighted Avg.

Options

   

Weighted Avg.

Exercise Price

 
Options, January 1, 2015     21,052,030     $ 0.20  
Options granted     838,552       0.46  
Options exercised            
Options forfeited     (355,434 )     0.72  
Options, December 31, 2015     21,535,148     $ 0.30  
Options granted     2,250,527       0.19  
Options exercised            
Options forfeited     (311,419 )     0.75  
Options, December 31, 2016     23,474,256     $ 0.28  

 

The weighted average exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest as of December 31, 2016 were as follows:

 

      Outstanding Options     Exercisable Options  

Option

Exercise Price

Per Share

    Shares    

Life

(Years)

   

Weighted

Average Exercise

Price

    Shares    

Weighted

Average Exercise

Price

 
$ 0.18 - $ 0.99       23,323,810       4.8     $ 0.27       22,783,810     $ 0.28  
$ 1.00 - $ 1.99       150,446       6.6     $ 1.18       150,446     $ 1.18  
        23,474,256             $ 0.28       20,671,512     $ 0.28  

 

As of December 31, 2016 the market price of the Company’s stock was $0.05 per share.  At December 31, 2016 the aggregate intrinsic value of the options outstanding was $0. Future unamortized compensation expense on the unvested outstanding options at December 31, 2016 is approximately $41,000.

 

Year Ending December 31, 2016

 

  · From January through May 2016, the Company issued options to purchase a total of 2,250,527 shares of common stock to employees, officers and members of the Board of Directors with a fair value of $357,000 using the Black-Scholes Option Pricing model. The options are exercisable from $0.18 up to $0.19 per share, vesting within one or two years and expiring in ten years from the date of grant. During the year ended December 31, 2016, the Company recognized compensation costs of $316,000 based on options that vested.

 

  · During the year ended December 31, 2016, the Company amortized $34,000 of compensation cost based on the vesting of the options granted to employees and directors in prior years.

 

Year Ending December 31, 2015

 

  · From January through July 2015, the Company issued options to purchase a total of 838,552 shares of common stock to employees, officers and members of the Board of Directors with a fair value of $324,000 using the Black-Scholes Option Pricing model. The options are exercisable from $0.65 up to $0.99 per share, vesting within one year and expiring in ten years from the date of grant. During the year ended December 31, 2015, the Company recognized compensation costs of $324,000 based on the options that vested.

 

  · During the year ended December 31, 2015, the Company amortized $366,000 of compensation cost based on the vesting of the options granted to employees and directors in prior years.

 

Black-Scholes Option Pricing

 

The Company used the following average assumptions in its calculation using the Black-Scholes Option Pricing model:

 

    Years Ended  
    2016     2015  
Expected life (years)     5.5       5.0 – 5.5  
Risk free interest rate     1.23 – 1.72 %     1.56 – 1.72 %
Volatility     119 – 121 %     106 – 121 %
Expected dividend yield     0 %     0 %

 

The assumptions used in the Black Scholes models referred to above are based upon the following data: (1) the contractual life of the underlying non-employee options is the expected life. The expected life of the employee option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. (2) The expected stock price volatility was based upon the Company’s historical stock price over the expected term of the option. (3) The risk free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options. (4) The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future.

 

Warrants

 

The following table summarizes certain information about the Company’s stock purchase warrants.

 

    Warrants    

Weighted Avg.

Exercise Price

 
Warrants outstanding, January 1, 2015     5,692,087     $ 0.36  
Warrants granted     1,796,667       0.20  
Warrants exercised     (200,000 )     0.25  
Warrants cancelled     (2,877,087 )     0.36  
Warrants outstanding, December 31, 2015     4,411,667     $ 0.31  
Warrants granted     8,735,225       0.11  
Warrants exercised            
Warrants cancelled     (1,700,000 )     0.30  
Warrants outstanding, December 31, 2016     11,446,892     $ 0.15  

 

At December 31, 2016 the price of the Company’s common stock was $0.05 per share and the aggregate intrinsic value of the warrants outstanding was $0. Future unamortized compensation expense on the unvested outstanding warrants at December 31, 2016 is approximately $3,000.

 

      Outstanding Warrants     Exercisable Warrants  

Warrant

Exercise Price

Per Share

    Shares    

Life

(Years)

   

Weighted

Average Exercise

Price

    Shares    

Weighted

Average Exercise

Price

 
$ 0.10 - $ 0.99       11,446,892       1.1     $ 0.15       11,346,892     $ 0.15  
$ 1.00 - $ 1.99                 $           $ -  
        11,446,892             $ 0.15       11,346,892     $ 0.15  

 

Year Ending December 31, 2016

 

  · In January through August 2016, pursuant to terms of convertible notes issued, the Company granted warrants to purchase 7,935,225 shares of common stock with an exercise price of $0.10 per share, vesting immediately upon grant and expiring one year from the date of grant. See Note 5 for further discussion.

 

  · In February through July 2016 the Company granted warrants to purchase 800,000 shares of common stock to consultants. The options are exercisable starting at $0.12 per share to $0.18 per share, 600,000 shares vested immediately and 200,000 shares over vest two years, and expire in one to three years from the date granted. The fair value of these warrants was computed using the Black-Scholes Option Pricing model with the following assumptions: life of 1 year through 10 years; average stock price of $0.16 per share, average risk free interest rate of 0.82%; average volatility of 110% and dividend yield of 0%. During the year ended December 31, 2016, the Company recognized an expense of $59,000 based on the fair value of warrants that vested.

 

  · In May 2016, the Company amended the terms of a warrant issued in 2015, extending the expiration date of the warrant by twelve months with no changes to the other terms of the original grant. As a result, the Company recorded the incremental change in the fair value of this warrant before and after the date of the amendment of $32,000, computed using the Black-Scholes Option Pricing model with the following assumptions: life of 1 year; stock price of $0.17 per share, average risk free interest rate of 0.81%; average volatility of 97% and dividend yield of 0%. During the year ended December 31, 2016, the Company recognized an expense of $32,000 based on the fair value of the warrant as amended.

 

  · During the year ended December 31, 2015, the Company amortized $1,000 of compensation cost based on the vesting of the warrants granted to employees, directors and consultants in prior years.

 

Year Ending December 31, 2015

 

  · In January 2015, warrants to acquire 200,000 shares of common stock were exercised resulting in gross proceeds of $50,000.

 

  · In May through December 2015, pursuant to terms of convertible notes issued, the Company granted warrants to purchase 1,796,667 shares with exercise prices of $0.30 per share and $0.10 per share, vesting immediately upon grant and expiring one year from the date of grant. See Note 5 for further discussion.

 

  · During the year ended December 31, 2015, the Company amortized $39,000 of compensation cost based on the vesting of the warrants granted to employees, directors and consultants in prior years.