Equity-Based Compensation

6 Months Ended

Jun. 30, 2016

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 2,225,000 and 800,000 options or equity warrants granted in the six months ended June 30, 2016 and 2015, respectively.

Stock option for employees' activity during the six months ended June 30, 2016 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, 2016		10,725,248		$	1.58		4.02	$	—
Granted		2,225,000			.13		—		—
Forfeited		(851,650	)		.85		—		—
Outstanding June 30, 2016		12,098,598		$	1.37		4.84	$	—
Vested and expected to vest June 30, 2016		12,098,598		$	1.37		4.84	$	—
Exercisable June 30, 2016		9,898,598		$	1.39		3.56	$	—

Unvested stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2016		333,333		$	0.29		7.82	$	—
Granted		2,225,000			.13		—		—
Vested		(358,333	)		.24				—
Forfeited		—			—		—		—
Outstanding June 30, 2016		2,200,000		$	.14		9.74	$	—

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, 2016		3,303,000		$	1.29		4.31	$	—
Granted		550,000			.13		—		—
Exercised		—			—		—		—
Forfeited		(380,000	)		3.73		—		—
Outstanding June 30, 2016		3,473,000		$	.84		5.21	$	—
Vested and expected to vest June 30, 2016		3,473,000		$	.84		5.21	$	—
Exercisable June 30, 2016		2,923,000		$	.97		4.31	$	—

Unvested stock option activity for non-employees during the year:

	Number of Options		Weighted Average Exercise Price		Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding January 1, 2016		—	$	—		—	$	—
Granted		550,000		.13		—		—
Vested		—		—		—		—
Forfeited		—		—		—		—
Outstanding June 30, 2016		550,000	$	.13		10.00	$	—

The impact on the Company’s results of operations of recording equity-based compensation for the six months ended June 30, 2016 and 2015 was to increase costs and expenses by approximately $238,000 and $111,000, respectively, which had no impact on earnings per share.

As of June 30, 2016 and 2015, respectively, there was $380,000 and $269,000 of unrecognized equity-based compensation cost related to options granted under the Equity Incentive Plan.

On January 26, 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 six months ended June 30, 2016, The Company granted rights to 1,477,201 incentive shares and recorded $192,000 in equity-based compensation under this Plan.