Annual report pursuant to Section 13 and 15(d)

STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

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STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
9. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

 

During the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan) under which the Company may grant options to purchase up to 5,000,000 shares of common stock. On September 7, 2013, the 2010 plan was amended to increase the number of shares of common stock issuable under the 2010 Plan to 7,500,000. As of December 31, 2016 and 2015, there were 250,000 and 250,000 options outstanding under the 2010 Plan, respectively.

 

During the year ended December 31, 2011, the Company adopted a non-qualified stock option plan entitled “2011 Non-Qualified Stock Plan” (2011 Plan) under which the Company may grant options to purchase 2,100,000 shares of common stock. In December 2012, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 12,000,000 shares. During the period ended March 31, 2013, the 2011 Plan was amended to increase the number of shares of common stock issuable under the 2011 Plan to 17,500,000. As of December 31, 2016 and 2015, there were 12,039,000 and 6,039,000 options outstanding under the 2011 Plan, respectively

 

Under the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option on the grant date. Vesting of the options is typically three to four years and the options typically expire in five to ten years.

 

In March 2015, the Board of Directors approved a grant of non-qualified stock options to the independent directors of the Company to purchase an aggregate of 384,000 shares of the Company’s common stock at an exercise price of $0.18. The options were allocated among the directors based on service in, and chairmanship of the Company’s committees and service as lead independent director. The options vest as of December 31, 2015, provided that the directors remain directors on that date and have attended at least 75% of the scheduled meetings of the Board and the committees on which such directors serve during the 2015 calendar year. In addition, during the period ended March 31, 2015, the Company granted incentive stock options to members of management and non-management of the Company to purchase an aggregate of 700,000 shares of the Company’s common stock at exercises prices ranging from $0.18 to $0.20 per share, all of which vested immediately. The Company also granted non-qualified stock options to consultants of the Company to purchase an aggregate of 625,000 shares of the Company’s common stock at an exercise price of $0.18, all of which vested immediately.

 

During the three months ended June 30, 2015, the Company granted a non-qualified stock option, to a consultant to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $0.20, which vested immediately.

 

On August 22, 2016, the Company granted 6,000,000 options to purchase its common shares to its new CEO as a part of his employment agreement. The options consist of 3 separate tranches with different exercise prices and vest upon reaching certain milestones. All 6 million options have a five year life. The first 2,000,000 shares have an exercise price of $0.20 per share and vest upon the Company raising at least $1 million in financing. The second 2,000,000 shares carry an exercise price of $0.40 per share and vest upon the Company raising $5 million in financing. The third 2,000,000 shares carry an exercise price of $0.60 per share and vest upon the Company entering into a significant corporate alliance for substantial marketing and selling of the Company’s product portfolio.

 

In addition, the Company amended 1,500,000 stock options previously granted to the new CEO to extend the expiration date to August 22, 2026. These options were all previously vested.

 

The fair value of stock options granted and revaluation of non-employee consultant options for years ended December 31, 2016 and 2015 was calculated with the following assumptions:

 

    2016     2015  
Risk-free interest rate     1.1 %     1.3% - 1.9%  
Expected dividend yield     0 %     0 %
Volatility factor     213 %      79% - 91%  
Expected life of option     5 years       4.6 to 10 years  

 

The weighted-average fair value of stock options granted during the years ended December 31, 2016 and 2015, under the Black-Scholes option pricing model was $0.06 and $0.14 per share, respectively. For the years ended December 31, 2016 and 2015, the Company recorded stock-based compensation expense of $238,316 and $279,788, respectively, in connection with share-based payment awards. As of December 31, 2016, there was $232,195 of unrecognized compensation expense related to non-vested stock option awards.

 

The following table summarizes the Company’s stock option activity during the years ended December 31, 2016 and 2015:

 

    Shares     Exercise 
Price per 
Share
    Weighted
Average
Exercise Price
per Share
 
Outstanding as of December 31, 2014     6,483,400     $ 0.10 – 1.85     $ 0.47  
Granted     1,809,000        0.18 – 0.20       0.18  
Exercised     -       -       -  
Options forfeited/cancelled     (2,003,400 )      0.18 – 1.85       0.51  
Outstanding as of December 31, 2015     6,289,000     $ 0.10 – 1.21     $ 0.37  
Granted     7,500,000        0.10 – 0.60       0.34  
Exercised     -       -       -  
Options forfeited/cancelled     (1,500,000 )     0.10       0.10  
Outstanding as of December 31, 2016     12,289,000     $ 0.10 – 1.21     $ 0.39  

 

The following table summarizes information about stock options that are vested or expected to vest at December 31, 2016:

 

      Vested or Expected to Vest                 Exercisable Options  
Exercise
Price
    Number of
Options
    Weighted
Average
Exercise Price
Per Share
    Weighted
Average
Remaining
Contractual
Life (Years)
    Aggregate
Intrinsic
Value
    Number of
Options
    Weighted
Average
Exercise
Price
Per Share
    Weighted
Average
Remaining
Contractual
Life (Years)
    Aggregate
Intrinsic
Value
 
$ 0.10       1,795,000     $ 0.10       8.20     $ -       1,795,000     $ 0.10       8.20     $ -  
  0.18       934,000       0.18       6.50       -       934,000       0.18       6.50       -  
  0.20       2,150,000       0.20       4.91       -       2,150,000       0.20       4.91       -  
  0.37       58,000       0.37       5.67       -       58,000       0.37       5.67       -  
  0.40       2,000,000       0.40       4.67       -       -       0.40       4.67       -  
  0.42       63,000       0.42       4.00       -       63,000       0.42       4.00       -  
  0.50       2,810,000       0.50       1.05       -       2,810,000       0.50       1.05       -  
  0.60       2,000,000       0.60       4.67       -       -       0.60       4.67       -  
  0.69       100,000       0.69       7.25       -       100,000       0.69       7.25       -  
  1.21       379,000       1.21       7.03       -       379,000       1.21       7.03       -  
$ 0.10-1.21       12,289,000     $ 0.39       4.63     $ -       8,289,000     $ 0.39       4.63     $ -  

 

The following table sets forth the status of the Company’s non-vested stock options as of December 31, 2016:

 

    Number of
Options
    Weighted-
Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2014     484,584     $ 0.39  
Granted     1,809,000       0.18  
Forfeited     (725,000 )     0.18  
Vested     (1,568,584 )     0.18  
Non-vested as of December 31, 2015     -     $ -  
Granted     7,500,000       0.34  
Forfeited     -       -  
Vested     (3,500,000 )     0.16  
Non-vested as of December 31, 2016     4,000,000     $ 0.50  

 

The weighted-average remaining contractual life for options exercisable at December 31, 2016 is 4.63 years. At December 31, 2016 the Company has 5,461,000 and 7,250,000 options available for grant under the 2011 Plan and 2010 Plan, respectively.

 

The aggregate intrinsic value for fully vested, exercisable options was $0 at both December 31, 2016 and 2015, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2016 and 2015 was $0 for both years as no options were exercised. The actual tax benefit realized from stock option exercises during the years ended December 31, 2016 and 2015 were $0 for both years as no options were exercised in either year.