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, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
11. 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, 2018 and 2017, 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, 2018 and 2017, there were 9,344,000 options outstanding under the 2011 Plan.

 

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.

 

On February 12, 2018, Loraine Upham was appointed as Chief Operating Officer. Ms. Upham received a stock option to purchase 4,000,000 shares of common stock under the Company’s Amended and Restated 2011 Stock Incentive Plan, vesting over three (3) years, one third on the first anniversary of the effective date and the balance in equal quarterly installments. The exercise price of the initial tranche of options (1,333,334 shares) shall be $0.06 per share, the second tranche (1,333,333 shares) shall be $0.10 per share and the final tranche (1,333,333 shares) shall be $0.20 per share. The term of the options is five years. Ms. Upham resigned from the Company on November 30, 2018. As a result of her resignation all of her stock options were terminated and returned to the option pool.

 

On March 1, 2018 the Board of Directors approved a reduction in the exercise price of 6,000,000 stock options issued to the Company’s CEO on August 22, 2016. The First tranche of 2,000,000 will be exercisable at $0.10 per share and the second and third tranches of 2,000,000 will be exercisable at $0.15 per share. The remainder of the terms remain unchanged. 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.

 

No stock options were issued under either plan during the year ended December 31, 2017.

 

The fair value of stock options granted and revaluation of non-employee consultant options for year ended December 31, 2018 was calculated with the following assumptions:

 

    2018  
Risk-free interest rate   2.22 - 2.3%  
Expected dividend yield   0%  
Volatility factor   217.6% - 219.04%  
Expected life of option   1.71 - 5 years  

  

The weighted-average fair value of stock options granted during the year ended December 31, 2016 under the Black-Scholes option pricing model was $0.12. For the years ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense of $175,076 and $49,756, respectively, in connection with share-based payment awards. As of December 31, 2018 and 2017, there was $144,991 and $182,439, respectively 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, 2018 and 2017:

 

    Shares     Exercise
Price per
Share
    Weighted
Average
Exercise Price
per Share
    Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2016     12,289,000     $ 0.10 – 1.21     $ 0.39     $  
Granted                          
Exercised                          
Options forfeited/cancelled     (2,695,000 )      0.10 – 0.50       0.47          
Outstanding as of December 31, 2017     9,594,000     $ 0.10 – 1.21     $ 0.36     $  
Granted     4,000,000       0.06 – 0.20       0.12          
Exercised                          
Options forfeited/cancelled     4,000,000       0.06 – 0.20       0.12          
Outstanding as of December 31, 2018     9,594,000     $ 0.10 – 1.21     $ 0.29     $  

  

The following table summarizes information about stock options that are vested or expected to vest at December 31, 2018:

 

            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       1,600,000       0.10       5.75     $       1,600,000     $ 0.10       5.75     $    
  0.18       934,000       0.18       4.50             934,000       0.18       4.50        
  0.20       2,150,000       0.20       3.37             2,150,000       0.20       3.37        
  0.37       58,000       0.37       3.67             58,000       0.37       3.67        
  0.40       2,000,000       0.40       2.67                   0.40       2.67        
  0.42       63,000       0.42       2.00             63,000       0.42       2.00        
  0.50       310,000       0.50       0.83             310,000       0.50       0.83        
  0.60       2,000,000       0.60       2.67                   0.60       2.67        
  0.69       100,000       0.69       5.25             100,000       0.69       5.25        
  1.21       379,000       1.21       5.03             379,000       1.21       5.03        
$ 0.10-1.21       9,594,000     $ 0.29       3.70     $       5,594,000     $ 0.27       4.47     $  

 

The following table sets forth the status of the Company’s non-vested stock options as of December 31, 2018 and 2017:

 

      Number of
Options
    Weighted-
Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2016       4,000,000     $ 0.50  
Granted              
Forfeited              
Vested              
Non-vested as of December 31, 2017       4,000,000     $ 0.50  
Granted       4,000,000       0.12  
Forfeited              
Vested       (4,000,000 )     0.12  
Non-vested as of December 31, 2018       4,000,000     $ 0.50  

 

The weighted-average remaining contractual life for options exercisable at December 31, 2018 is 3.70 years. At December 31, 2018 the Company has 8,156,000 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, 2018 and 2017, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2018 and 2017 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, 2018 and 2017 were $0 for both years as no options were exercised in either year.