Equity-Based Compensation

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Equity-Based Compensation

Note 3: Equity-Based Compensation

The fair value of each option and equity warrant award is estimated on the date of grant using a Black-Scholes-Merton option pricing valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option and equity warrant. The Company uses historical data to estimate expected dividend yield, expected life and forfeiture rates. There were 1,340,672 and 247,917 options and equity warrants granted in the nine months ended September 30, 2017 and 2016, respectively.

Stock option for employees’ activity during the nine months ended September 30, 2017 is as follows:

Stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2017		836,256		$	16.82		4.47	$	—
Granted		584,795			0.50		—		—
Forfeited		(208,382	)		34.09		—		—
Outstanding September 30, 2017		1,212,669		$	5.98		7.14	$	—
Vested and expected to vest September 30, 2017		1,212,669		$	5.98		7.14	$	—
Exercisable September 30, 2017		747,788		$	8.25		4.96	$	—

Unvested stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2017		90,625		$	1.72		9.33	$	—
Granted		584,795			0.50		—		—
Vested		(210,539	)		1.05		—		—
Forfeited		—			—		—		—
Outstanding September 30, 2017		464,881		$	0.49		9.86	$	—

Stock option activity for non-employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2017		271,500		$	10.41		4.66	$	—
Granted		605,877			0.42		—		—
Exercised		—			—		—		—
Forfeited		(40,313	)		19.67		—		—
Outstanding September 30, 2017		837,065		$	2.73		6.93	$	—
Vested and expected to vest September 30, 2017		837,065		$	2.73		6.93	$	—
Exercisable September 30, 2017		278,775		$	7.34		5.00	$	—

Unvested stock option activity for non-employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2017		26,389		$	1.65		8.61	$	—
Granted		605,877			0.42		—		—
Vested		(71,198	)		0.82		—		—
Forfeited		(2,778	)		1.56		—		—
Outstanding September 30, 2017		558,290		$	0.42		7.82	$	—

The impact on the Company’s results of operations of recording equity-based compensation for the nine months ended September 30, 2017 and 2016 was to increase costs and expenses by approximately $286,000 and $344,000, respectively, which decreased earnings per share by $0.01 and $0.02 for September 30, 2017 and 2016, respectively.

As of September 30, 2017 and 2016, respectively, there was $537,000 and $332,000 of unrecognized equity-based compensation cost related to options granted under the Equity Incentive Plan.

In January 2016, the Board, based on the recommendation of its Compensation Committee, established two programs - the 2016 Senior Executive Deferred Cash Performance Award Plan for Dr. William A. Carter and Thomas K. Equels, the Company’s two primary executive officers, and the 2016 Voluntary Incentive Stock Award Plan for Company employees and Board members other than Dr. Carter and Mr. Equels. Both Plans include a Base Pay Supplement provision.

The Company maintains a record of the number of shares of stock represented by each Incentive Right issued out of the 2016 Voluntary Incentive Stock Award Plan. During the nine months ended September 30, 2016, the Company granted rights of 140,936 incentive shares associated with the Plan and recorded $219,000 in equity-based compensation. There were no incentive shares issued during the nine months ended September 30, 2017.

Effective with the semi-monthly period ended April 30, 2017, all of the members of the Company’s Board of Directors agreed to accept 100% of their directors’ fees in the form of options to purchase Company Common Stock. This program was terminated as of August 31, 2017. In this regard, options to purchase 355,772 shares of Company common stock were issued with exercise prices ranging from $0.36 to $0.67, a holding period of 10 years and vesting over three years. In addition, commencing with the semi-monthly period ended June 15, 2017, certain officers of the Company and certain other employees of the Company, agreed to accept 20% of their salary in options to purchase Company Common Stock. This program was also terminated as of August 31, 2017. In this regard, options to purchase 284,795 shares of Company common stock were issued with exercise prices ranging from $0.36 to $0.49, a holding period of 10 years and vesting over three years.

As part of the cash conservation program adopted in August 2017, starting with the month of September 2017, the salaries of all the employees of the Company were paid 50% in the form of unrestricted common stock of the Company. The number of shares issued, in September 2017, to the employees under this program were 408,072 shares at stock prices ranging from $0.34 to $0.38 per share. These shares include a $3,000 bonus paid in shares to each employee to help defray any future losses. This program will continue until discontinued by the Board of Directors