General form of registration statement for all companies including face-amount certificate companies

Stock Option Plans

v3.5.0.2
Stock Option Plans
6 Months Ended 12 Months Ended
Jun. 30, 2016
Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]    
Stock Option Plans

NOTE 7 – STOCK OPTION PLANS

 

On May 15, 2006, the Company adopted the 2006 Stock Incentive Plan. Under this plan, the Company may issue shares of restricted stock, incentive stock options, or non-statutory stock options to employees, directors, and consultants. The aggregate number of shares which may be issued under this plan was 16,521,704, which was increased by 1,456,786 to 17,978,490 as part of the Series B Offering in 2007. This plan was terminated on February 7, 2014.

 

On February 7, 2014, the Company adopted the 2014 Equity Compensation Plan. Under this plan, the Company may issue options to purchase shares of common stock to employees, directors, advisors, and consultants. The aggregate number of shares that may be issued under this plan is 30,420,148. On April 16, 2015, the majority stockholder of the Company approved an increase in the Company’s 2014 Equity Compensation Plan by 15 million shares.

 

Under the terms of the 2014 Equity Compensation Plan and the 2006 Stock Incentive Plan (collectively, the “Plans”), incentive stock options may be granted to employees at a price per share not less than 100% of the fair market value at date of grant. If the incentive stock option is granted to a 10% stockholder, then the purchase or exercise price per share shall not be less than 110% of the fair market value per share of common stock on the grant date. Non-statutory stock options and restricted stock may be granted to employees, directors, advisors, and consultants at a price per share, not less than 100% of the fair market value at date of grant. Options granted are exercisable, unless specified differently in the grant documents, over a default term of ten years from the date of grant and generally vest over a period of four years.

 

A summary of stock option activity is as follows:

 

    Options     Weighted
average
exercise price
    Weighted
average
remaining
contractual
term in years
    Aggregate intrinsic
value
 
Outstanding January 1, 2015     27,752,315     $ 0.51       8.02     $ 1,963,523  
Exercisable January 1, 2015     26,156,553     $ 0.50       7.95     $ 1,962,239  
Canceled     -                          
Granted     6,456,890                          
Exercised     (41,851 )                        
Forfeited     -                          
Outstanding December 31, 2015     34,167,354     $ 0.47       6.57     $ 974,066  
Exercisable December 31, 2015     34,167,354     $ 0.47       6.57     $ 974,066  
Canceled     -                          
Granted     5,945,469                          
Exercised     -                          
Forfeited     (3,501,965 )                        
Outstanding June 30, 2016     36,610,858     $ 0.41       6.45     $ 160,528  
Exercisable June 30, 2016     36,610,858     $ 0.41       6.45     $ 160,528  

 

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price option recipients would have received if all options had been exercised on June 30, 2016, based on a valuation of the Company’s stock for that day.

 

A summary of the Company’s non-vested options for the six-months ended June 30, 2016 and year ended December 31, 2015, are presented below:

 

Non-vested at January 1, 2015     1,595,762  
Granted     6,456,890  
Vested     (8,010,801 )
Exercised     (41,851 )
Forfeited     -  
Non-vested at December 31, 2015     -  
Granted     5,945,469  
Vested     (5,945,469 )
Exercised     -  
Forfeited     -  
Non-vested at June 30, 2016     -  

 

Under ASC No. 718, the Company estimates the fair value of stock options granted on each grant date using the Black-Scholes option valuation model and recognizes an expense ratably over the requisite service period. The range of fair value assumptions related to options outstanding were as follows:

 

    June 30, 2016     December 31, 2015  
Dividend yield     0.0 %     0.0 %
Risk-free rate     0.12% - 1.47 %     0.12% - 1.47 %
Expected volatility     112% - 170 %     112% - 170 %
Expected term     1.1 - 5.5 years       1.1 - 5.5 years  

 

The expected volatility was calculated based on the historical volatilities of publicly traded peer companies, determined by the Company. The risk free interest rate used was based on the U.S. Treasury constant maturity rate in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend yield was zero, as the Company does not anticipate paying a dividend within the relevant timeframe. Due to a lack of historical information needed to estimate the Company’s expected term, it was estimated using the simplified method allowed under ASC No. 718. In calculating the number of options issued during the six-months ended June 30, 2016, the Company used assumptions comparable to December 31, 2015, with a 20-day weighted average stock price.

 

As part of the requirements of ASC No. 718, the Company is required to estimate potential forfeitures of stock grants and adjust stock based compensation expense accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock based compensation expenses to be recognized in future periods.

 

The Company recognized $0 and $356,729 in stock based compensation expense related to options during the three and six-months ended June 30, 2016, respectively, and $347,468 and $962,578 in stock based compensation expense related to options during the three and six-months ended June 30, 2015, respectively. Of these amounts, $0 and $227,784 were related to 0 and 3,796,385 options issued to employees in lieu of salaries accrued for services during the three and six-months ended June 30, 2016, respectively, and $250,853 and $530,545 were related to 1,929,636 and 3,261,502 options issued to employees in lieu of salaries accrued for services during the three and six-months ended June 30, 2015, respectively. $0 and $66,445 were related to 0 and 1,107,417 options issued to consultants in lieu of fees accrued for services during the three and six-months ended June 30, 2016, respectively, and $59,115 and $139,680 were related to 454,732 and 838,376 options issued to consultants in lieu of fees accrued for services during the three and six-months ended June 30, 2015, respectively. $0 and $62,500 were related to 0 and 1,041,667 options issued to directors as compensation for services during the three and six-months ended June 30, 2016, respectively, and $37,500 and $92,885 were related to 288,462 and 552,198 options issued to a director as compensation for services during the three and six-months ended June 30, 2015, respectively.

 

Option exercise

 

On October 26, 2015, the Company issued 25,556 shares of common stock in the Company to a consultant in connection with the cashless exercise of a stock option for 41,851 shares of common stock at $0.155 per share with 16,295 shares of common stock withheld with an aggregate fair market value equal to the aggregate exercise price.

NOTE 9 – STOCK OPTION PLANS

 

On May 15, 2006, the Company adopted the 2006 Stock Incentive Plan. Under this plan, the Company may issue shares of restricted stock, incentive stock options, or non-statutory stock options to employees, directors, and consultants. The aggregate number of shares which may be issued under this plan was 16,521,704, which was increased by 1,456,786 to 17,978,490 as part of the Series B Offering in 2007. This plan was terminated on February 7, 2014.

 

On February 7, 2014, the Company adopted the 2014 Equity Compensation Plan. Under this plan, the Company may issue options to purchase shares of common stock to employees, directors, advisors, and consultants. The aggregate number of shares that may be issued under this plan is 30,420,148. On April 16, 2015, the majority stockholder of the Company approved an increase in the Company’s 2014 Equity Compensation Plan by 15 million shares.

 

Under the terms of the 2014 Equity Compensation Plan and the 2006 Stock Incentive Plan (collectively, the “Plans”), incentive stock options may be granted to employees at a price per share not less than 100% of the fair market value at date of grant. If the incentive stock option is granted to a 10% stockholder, then the purchase or exercise price per share shall not be less than 110% of the fair market value per share of common stock on the grant date. Non-statutory stock options and restricted stock may be granted to employees, directors, advisors, and consultants at a price per share, not less than 100% of the fair market value at date of grant. Options granted are exercisable, unless specified differently in the grant documents, over a default term of ten years from the date of grant and generally vest over a period of four years.

 A summary of stock option activity is as follows:

 

    Options     Weighted
average
exercise
price
    Weighted
average
remaining
contractual
term in years
    Aggregate
intrinsic value
 
Outstanding January 1, 2014     15,290,486     $ 0.07       3.89     $ 305,810  
Exercisable January 1, 2014     15,290,486     $ 0.07       3.89     $ 305,810  
Canceled     (15,290,486 )                        
Granted     27,756,821                          
Exercised     (4,506 )                        
Forfeited     -                          
Outstanding December 31, 2014     27,752,315     $ 0.51       8.02     $ 1,963,523  
Exercisable December 31, 2014     26,156,553     $ 0.50       7.95     $ 1,962,239  
Canceled     -                          
Granted     6,456,890                          
Exercised     (41,851 )                        
Forfeited     -                          
Outstanding December 31, 2015     34,167,354     $ 0.47       6.57     $ 974,066  
Exercisable December 31, 2015     34,167,354     $ 0.47       6.57     $ 974,066  

 

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price option recipients would have received if all options had been exercised on December 31, 2015, based on a valuation of the Company’s stock for that day.

 

A summary of the Company’s non-vested options for the year ended December 31, 2015 and year ended December 31, 2014, are presented below:

 

Non-vested at January 1, 2014     -  
Granted     27,756,821  
Vested     (26,156,553 )
Exercised     (4,506 )
Forfeited     -  
Non-vested at December 31, 2014     1,595,762  
Granted     6,456,890  
Vested     (8,010,801 )
Exercised     (41,851 )
Forfeited     -  
Non-vested at December 31, 2015     -  

 

 

Under ASC No. 718, the Company estimates the fair value of stock options granted on each grant date using the Black-Scholes option valuation model and recognizes an expense ratably over the requisite service period. The range of fair value assumptions related to options outstanding as of December 31, 2015 and 2014, were as follows:

 

    December 31, 2015     December 31, 2014  
Dividend yield     0.0 %     0.0 %
Risk-free rate     0.12% - 1.47 %     0.12% - 1.47 %
Expected volatility     112% - 170 %     112% - 170 %
Expected term     1.1 - 5.5 years       1.1 - 5.5 years  

 

The expected volatility was calculated based on the historical volatilities of publicly traded peer companies, determined by the Company. The risk free interest rate used was based on the U.S. Treasury constant maturity rate in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend yield was zero, as the Company does not anticipate paying a dividend within the relevant time frame. Due to a lack of historical information needed to estimate the Company’s expected term, it was estimated using the simplified method allowed under ASC No. 718. In calculating the number of options issued during the year ended December 31, 2015, the Company used assumptions comparable to December 31, 2014, with a 20-day weighted average stock price.

 

As part of the requirements of ASC No. 718, the Company is required to estimate potential forfeitures of stock grants and adjust stock based compensation expense accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock based compensation expenses to be recognized in future periods.

 

The Company recognized $1,413,552 and $5,917,351 in stock based compensation expense related to options during the years ended December 31, 2015 and 2014, respectively. Of these amounts, $1,210,124 and $0 were related to 6,456,890 options issued to employees, directors, and consultants in lieu of salaries, wages, and fees accrued for services during the years ended December 31, 2015 and 2014, respectively.

 

Option exercise

 

On October 26, 2015, the Company issued 25,556 shares of common stock in the Company to a consultant in connection with the cashless exercise of a stock option for 41,851 shares of common stock at $0.155 per share with 16,295 shares of common stock withheld with an aggregate fair market value equal to the aggregate exercise price.