Annual report pursuant to Section 13 and 15(d)

Stock Option Plans

v3.6.0.2
Stock Option Plans
12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Option Plans
Note 13 — Stock Option Plans
 
The Company has the following Stock Option Plans (“Plans”) that allow for the granting of both statutory and incentive stock options or ISOs, which can result in potentially favorable tax treatment to the participant, and non-statutory stock options. The Company’s 2014 Equity Incentive Plan (the “2014 Plan”) was approved by the stockholders of the Company on June 26, 2014. The Company will no longer issue any options under the 2007 and 2009 Plans. The 2014 Plan has an “evergreen provision”, under which the maximum number of shares of common stock that may be issued under the 2014 Plan was initially 1,000,000 and automatically increase each time the Company issues additional shares of common stock so that the total number of shares issuable thereunder at all times equals 10% of the then outstanding shares of common stock, unless in any case the Board of Directors adopts a resolution providing that the number of shares issuable under the 2014 Plan not be so increased. As at December 31, 2016, the authorized shares of common stock under the 2014 Plan totaled 1,956,925.
 
The exercise price per share subject to an option is determined by the administrator, but in the case of an ISO must not be less than the fair market value of a share of our common stock on the date of grant and in the case of a non-statutory stock option must not be less than 100% of the fair market value of a share of our common stock on the date of grant.
 
Under the 2014 Plan, the Company may grant stock options, stock appreciation rights, performance awards of stock and/or cash, and stock awards of restricted stock.
 
Options outstanding under the Stock Options Plans are as follows:
 
 
 
2007
 
2009
 
2014
 
 
 
 
 
Plan
 
Plan
 
Plan
 
Total
 
Outstanding as of December 31, 2016
 
 
21,977
 
 
132,771
 
 
929,550
 
 
1,084,298
 
Available for future issuance under plan
 
 
 
 
 
 
1,027,375
 
 
1,027,375
 
Totals authorized by plan
 
 
21,977
 
 
132,771
 
 
1,956,925
 
 
2,111,673
 
 
The 2014 Plan gives the Board of Directors of the Company the ability to determine vesting periods for all stock incentives granted under the 2014 Plan, and allows option terms to be up to ten years from the original grant date. Employees’ incentive stock options must vest at a minimum rate of 20% per year over a five year period, commencing on the date of grant. Most vest ratably over four years commencing on the date of the option grant. In the case of directors, such options are granted annually and expire ten years after the date of their grant and vest ratably, on a monthly basis, over the next 12 months. Non-employee directors have vesting of 50% immediately on grant and the balance vest ratably, on a monthly basis, over the next 12 months. Advisors or consultants can have vesting range from 100% of the option grants vesting immediately to ratably, on a monthly basis, up to 48 months.
 
The following table summarizes stock option activity for the years ended December 31, 2016 and 2015:
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
Weighted
 
Average
 
 
 
Number of
 
Average
 
Remaining Life
 
 
 
Options
 
Exercise Price
 
(years)
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2014
 
 
720,551
 
$
4.46
 
 
8.56
 
Granted
 
 
374,000
 
 
5.67
 
 
 
 
Exercised
 
 
(15,833)
 
 
2.60
 
 
 
 
Expired or Forfeited
 
 
(55,929)
 
 
8.12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2015
 
 
1,022,789
 
$
4.59
 
 
7.56
 
Granted
 
 
116,750
 
 
6.60
 
 
 
 
Exercised
 
 
(10,450)
 
 
3.46
 
 
 
 
Expired or Forfeited
 
 
(44,791)
 
 
3.87
 
 
 
 
Outstanding at December 31, 2016
 
 
1,084,298
 
$
4.76
 
 
7.57
 
 
As of December 31, 2016, there were 613,665 options that were fully vested and exercisable at weighted average exercise price of $4.83 per share. The weighted average remaining contractual term on the vested options is 7.0 years.
 
The unvested balance of 470,633 options as of December 31, 2016, are exercisable at a weighted average exercise price of $4.67 per share. The weighted average remaining contractual term on the vested options is 8.4 years.
  
The aggregate intrinsic value of the options outstanding as of December 31, 2016 was approximately $2,776,068.
 
The Black-Scholes-Merton option pricing model was used to estimate the fair value of share-based awards under FASB ASC Topic 718. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility. For valuation purposes, stock option awards were categorized into two groups, stock option grants to employees and stock option grants to members of the Board of Directors.
 
The expected term of options granted was estimated to be the average of the vesting term, historical exercise and forfeiture rates, and the contractual life of the option. The share price volatility at the grant date is estimated using historical stock prices based upon the expected term of the options granted. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Cash dividends have never been paid and are not anticipated to be paid in the foreseeable future. Therefore, the assumed expected dividend yield is zero.
 
The following summary table shows the assumptions used to compute the fair value of stock options granted during 2016 and 2015 and their estimated value:
 
December 31,
 
2016
 
 
2015
 
Assumptions for Black-Scholes:
 
 
 
 
 
 
 
 
Expected term in years
 
 
7.9
 
 
 
6.0 to 7.9
 
Volatility
 
 
103.6% to 109.7%
 
 
 
111.4 to 113.5%
 
Risk-free interest rate
 
 
1.27% to 1.68%
 
 
 
1.74% to 2.02%
 
Expected annual dividends
 
 
None
 
 
 
None
 
 
 
 
 
 
 
 
 
 
Value of options granted:
 
 
 
 
 
 
 
 
Number of options granted
 
 
116,750
 
 
 
374,000
 
Weighted average fair value per share
 
$
5.73
 
 
$
4.50
 
Fair value of options granted
 
$
669,435
 
 
$
1,684,179
 
 
FASB ASC Topic 718 requires pre-vesting option forfeitures at the time of grant to be estimated and periodically revised in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recorded only for those awards expected to vest using an estimated forfeiture rate based on historical pre-vesting forfeiture data.
 
Unrecognized stock-based compensation expense was approximately $2,080,180 as of December 31, 2016, relating to a total of 470,633 unvested stock options under the Company’s stock option plans. This stock-based compensation expense is expected to be recognized over a weighted average period of approximately 2.4 years. Unrecognized stock-based compensation expense was approximately $2,186,000 as of December 31, 2015, relating to a total of 598,101 unvested stock options under the Company’s stock option plans.