Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.5.0.2
Stockholders' Equity
9 Months Ended
Sep. 30, 2016
Notes to Financial Statements  
Note 10. Stockholders' Equity

All common shares, warrants and stock option amounts and per share amounts for all periods reported below has been retroactively adjusted to reflect the Company’s 1-for-5 reverse stock split, which was effective July 20, 2016.

 

At September 30, 2016, there were 5,183,231 common shares, 1,772,622 stock warrants and 1,451,861 stock options outstanding, all totaling 8,407,714 of total stock and stock equivalents outstanding at September 30, 2016. At December 31, 2015, there were 3,725,819 common shares, 977,355 stock warrants and 1,047,450 stock options outstanding, totaling 5,750,624 of total stock and stock equivalents outstanding at December 31, 2015.

 

Securities Purchase Agreement – General International Holdings, Inc.

 

On June 28, 2016, we entered into a Securities Purchase Agreement (the “GIH Offering”) with General International Holdings, Inc. (“GIH”) pursuant to which GIH agreed to purchase 1,020,000 shares of the Company’s newly created Non-Voting Series A Convertible Preferred Stock (the “Series A Preferred Stock”) for $2.8 million or approximately $2.75 per share, subject to the terms and conditions set forth in the GIH Offering. On August 2, 2016, the closing of the sale of the Series A Preferred Stock under the GIH Offering took place.

 

The initial value attributed to the Series A Preferred Stock of $2,800,000 represents a discount of approximately $581,300 from its initial conversion value of $3,381,300, or approximately $0.57 per share. The average of the high and low market prices of the common stock on August 2, 2016, the date of the closing of the sale of the preferred stock, was $3.315 per share. The intrinsic value of the Series A Preferred Stock is $3.315 multiplied by the 1,020,000 common shares into which the Series A Preferred Stock is convertible or $3,381,300. Subtracting the $2,800,000 of proceeds from the intrinsic value of Series A Preferred Stock, resulted in an intrinsic value for the beneficial conversion feature totaling $581,300. The Company recorded this beneficial conversion feature as a deemed dividend on convertible preferred stock upon issuance, for the three months and nine months ended September 30, 2016. At the closing, Mr. Xingping Hou, the president of GIH, joined the Board of Directors of the Company as co-Chairman.

 

The Series A Preferred Stock is non-voting and is convertible at the option of the holder into shares of the Company’s common stock initially on a one-for-one basis. Dividends accrue on the Series A Preferred Stock at the rate of 7% per year and will be paid in-kind. The accumulated dividend (unpaid) at September 30, 2016 was approximately $33,000.

 

The Company has the option of forcing the conversion of the Series A Preferred Stock if the trading price for the Company’s common stock is more than two times the applicable conversion price (approximately $2.75 per share) before the third anniversary of the issuance of the Series A Preferred Stock, or if the trading price is more than three times the applicable conversion price following the third anniversary of issuance. The Company may also redeem the Series A Preferred Stock following the third anniversary of the issuance.

 

Series A Preferred Stock

 

On July 29, 2016, in anticipation of the closing under the Purchase Agreement with General International Holdings, Inc., (see above) the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Non-Voting Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada. Pursuant to the Certificate of Designation, the Company’s Board of Directors designated a new series of the Company’s preferred stock, the Non-Voting Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). The Certificate of Designation authorized the Company to issue 1,020,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock has a liquidation preference of $2.75 per share. The holders of the Series A Preferred Stock have no voting rights. In addition, as long as 255,000 shares of Series A Preferred Stock are outstanding, the Company may not take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series A Preferred Stock. The Company has the option at any time after August 2, 2019 to redeem some or all of the outstanding Series A Preferred Stock for an amount in cash equal to the liquidation preference plus the amount of any accrued but unpaid dividends of the Series A Preferred Stock being redeemed. The Series A Preferred Stock is not redeemable upon the election of the holders of Series A Preferred Stock.

 

Aspire Option Agreement

 

On August 10, 2016 the Company entered into an option agreement with Aspire Capital whereby the Company has the right, at any time prior to December 31, 2019, to require Aspire Capital to enter into with the Company, up to two common stock purchase agreements each with a three year term, with an aggregate amount under both purchase agreements combined not to exceed $20,000,000. A notice to Aspire exercising the option may be revoked by the Company at any time prior to the parties entering into a purchase agreement without effecting or limiting the Company’s future rights to give a subsequent option notice to Aspire Capital, under the terms and conditions of the option agreement.

 

The Company issued 500,000 common stock purchase warrants with a strike price of $0.01 per share to Aspire Capital as the commitment fee for entering into this option agreement. The commitment fee of approximately $1.7 million was recorded as deferred financing costs and additional paid-in capital and this asset will be amortized over the life of the option agreement. The amortized amount of $0.1 million was expensed to financing costs during the three months and nine months ended September 30, 2016. The total short-term and long-term unamortized portion is carried on the balance sheet as deferred financing cost was approximately $1.6 million at September 30, 2016.

 

The assumptions used in the Black Scholes option-pricing model for the three months ended and nine months ended September 30, 2016, were as follows:

 

Average risk-free interest rate     0.83 %
Average expected life- years     3.39  
Expected volatility     92.61  
Expected dividends     0 %

 

The future amortization of deferred financing costs are as follows (in millions):

 

2016   $ 0.1  
2017   $ 0.5  
2018   $ 0.5  
2019   $ 0.5  

  

Securities Purchase Agreement - Aspire Capital

 

On June 28, 2016, we entered into a Securities Purchase Agreement with Aspire Capital Fund, pursuant to which the Company has agreed to sell up to $5.0 million of shares of the Company’s common stock to Aspire Capital, without an underwriter or placement agent.

 

Pursuant to the Securities Purchase Agreement, the Company sold 371,400 shares of common stock and 295,267 in the form of pre-funded warrants with an exercise price of $0.05 per share to Aspire Capital on June 28, 2016 for $1.0 million (the “First Purchase”). The Securities Purchase Agreement provides for the sale of up to an additional $3.0 million of the Company’s common stock to Aspire Capital upon the Company’s announcement on or before March 31, 2017 of its entry into a binding joint venture agreement to fully develop and to commercialize Lightbridge-designed metallic nuclear fuel with a major global nuclear fuel fabrication company. The Securities Purchase Agreement also provided for the sale of up to an additional $1.0 million of the Company’s common stock upon the Company’s announcement on or before October 31, 2016 of its entry into a strategic arrangement regarding Lightbridge- designed nuclear fuel with one or more major nuclear utilities, but this milestone was not satisfied.

 

The subsequent closing is subject to customary conditions, including the satisfaction of Aspire Capital with achievement of the milestone. The purchase price per share for the subsequent closing will be based upon the market price of the common stock at the time of such closing, or, if lower, $5.00 per share. Aspire Capital may elect to receive pre-funded warrants in lieu of common stock for all or a portion of the subsequent closings. The Company did not use an underwriter or placement agent in connection with the offering and therefore owed no placement agent commissions on this offering.

 

The allocation of the proceeds from the offering, based on the relative fair value of the common stock and the warrants, resulted in the allocation of approximately $0.6 million of the net proceeds to the common stock sold and approximately $0.4 million of the net proceeds to the warrants, which was recorded to additional paid-in capital-stock.

 

The value of the warrants issued was calculated by using the Black Scholes Valuation Model, which was approximately the same as the Monte Carlo valuation method, using the following assumptions: volatility 91%; risk-free interest rate of 1%; dividend yield of 0%, and expected term of 5 years. The volatility of the Company’s common stock was estimated by management based on the historical volatility of the trading history of the Company’s common stock. The risk-free interest rate was based on the Treasury Constant Maturity Rates published by the U.S. Federal Reserve for periods applicable to the expected life of the warrants. The expected dividend yield was based on the Company’s current and expected dividend policy and the expected term is equal to the contractual life of the warrants.

 

Equity Purchase Agreement – Equity Line

 

On September 4, 2015, we entered into a common stock purchase agreement with Aspire Capital, which provides that Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares of our common stock over a two-year term, subject to our election to sell any such shares, and subject to the Nasdaq Listing Rule 5635(d) limitation. Nasdaq Listing Rule 5635(d) (“the Nasdaq 20% Rule”), requires shareholder approval of a transaction other than a public offering involving the sale, issuance, or potential issuance by a company of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the company’s outstanding shares of common stock, or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The Company held its Annual Meeting on May 12, 2016. At the 2016 Annual Meeting, the Company’s stockholders voted on the approval, pursuant to Nasdaq Listing Rule 5635(d), of the issuance of up to 3.0 million additional shares of common stock to Aspire Capital. The Company would seek stockholder approval before issuing more than such 3.0 million shares.

 

Under the agreement, we have the right to sell shares, subject to certain volume limitations and a minimum floor price, to Aspire Capital as of January 8, 2016, the date all conditions to the commencement of sales under the common stock purchase agreement were satisfied, including the effectiveness of the Form S-1 registration statement registering the resale of the Company’s common stock by Aspire Capital. On any trading day selected by the Company, the Company will have the right, in its sole discretion, to present Aspire Capital with a purchase notice directing Aspire Capital (as principal) to purchase up to 20,000 shares of the Company’s common stock per business day (in a purchase amount up to $250,000 on each such business day) at a price equal to the lesser of:

 

  1. The lowest sale price of the Company’s common stock on the purchase date; or
     
  2. The arithmetic average of the three (3) lowest closing sale prices for the Company’s common stock during the twelve (12) consecutive trading days ending on the trading day immediately preceding the purchase date.

 

In addition, on any date on which we submit a purchase notice to Aspire Capital in an amount equal to 20,000 shares, the Company also has the right, in its sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of the Company’s common stock traded on its principal market on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares as the Company may determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 95% of the volume-weighted average price for the Company’s common stock traded on its principal market on the VWAP Purchase Date.

 

As part of the agreement, Aspire Capital received 60,000 additional shares as compensation for its commitment, valued approximately $276,000 or $4.60 per common share, recorded to additional paid-in capital.

 

For the nine months ended September 30, 2016 we sold approximately 1.1 million common shares for total gross proceeds of approximately $2.7 million through the equity line financing arrangement with Aspire Capital that we have in place.

 

ATM Offering

 

On June 11, 2015, the Company entered into an at-the-market issuance (“ATM”) sales agreement with MLV & Co. LLC ("MLV"), pursuant to which the Company may issue and sell shares of its common stock from time to time through MLV as the Company's sales agent. On September 1, 2015, MLV was acquired by FBR & Co. The issuance and sale of shares by the Company under the sales agreement are registered shares under the Company's shelf registration statement on Form S-3, as filed with the Securities and Exchange Commission on June 11, 2015 and declared effective by the Securities and Exchange Commission. The Company registered the sale of up to $5.8 million of common stock under the ATM sales agreement. There have been approximately 49,000 shares sold for total gross proceeds of approximately $282,000 through the ATM for the twelve month period ended December 2015. There were no ATM sales for the nine months ended September 30, 2016.

 

Outstanding Warrants

 

    September 30,     December 31,  
    2016     2015  
Issued to Investors on July 28, 2010, entitling the holders to purchase 207,000 common shares in the Company at an exercise price of $45.00 per common share up to and including July 27, 2017. These warrants are reported in the liability section of our balance sheet.     207,000       207,000  
                 
Issued to Investors on October 25, 2013, entitling the holders to purchase 250,000 common shares in the Company at an exercise price of $11.50 per common share up to and including April 24, 2021. These warrants are reported in the liability section of our balance sheet.     223,436       223,436  
                 
Issued to Investors on November 17, 2014, entitling the holders to purchase 546,919 common shares in the Company at an exercise price of $11.55 per common share up to and including May 16, 2022 - reclassified to equity on June 30, 2016, exercise price amended to $6.25 per common share. These warrants are reported in the equity section of our balance sheet on September 30, 2016 and in the liability section of our balance sheet on December 31, 2015.     546,919       546,919  
                 
Issued to an Investor on June 28, 2016, entitling the holders to purchase 295,267 common shares in the Company at an exercise price of $0.05 per common share (pre-funded) up to and including June 27, 2021. These warrants are reported in the equity section of our balance sheet.     295,267       -  
                 
Issued to an investor on August 10, 2016, entitling the holders to purchase 500,000 common shares in the Company at an exercise price of price of $0.01 per share, up to and including December 31, 2019. These warrants are reported in the equity section of our balance sheet.     500,000       -  
                 
      1,772,622       977,355  

 

Stock-based Compensation – Stock Options and Restricted Stock

 

Stock Plan

 

The Company held its Annual Meeting on May 12, 2016 and the stockholders voted on the approval of an amendment to the 2015 Equity Incentive Plan to increase the number of shares authorized for issuance thereunder by 800,000 shares to 1,400,000 shares.

 

On March 25, 2015, the Compensation Committee and Board of Directors approved the 2015 Equity Incentive Plan (the “Plan”) to authorize grants of (a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, and (f) Performance Compensation Awards to the employees, consultants, and directors of the Company. The Plan authorizes a total of 1,400,000 shares to be available for grant under the Plan. The Plan became effective upon ratification by the shareholders of the Company at the shareholders’ annual meeting on July 14, 2015. Other provisions are as follows:

 

(i) Any shares of common stock granted in connection with Options and Stock Appreciation Rights shall be counted against this limit as one share for every one Stock Option or Stock Appreciation Right awarded. Any shares of common stock granted in connection with Awards other than Options and Stock Appreciation Rights shall be counted against this limit as two shares of common stock for every one share of common stock granted in connection with such Award;
   
(ii) Subject to adjustment in accordance with the Plan as amended, no Participant shall be granted, during any one year period, Stock Options to purchase Common Stock and Stock Appreciation Rights with respect to more than three hundred thousand (300,000) shares of Common Stock in the aggregate. The Plan also separately limits other Equity Awards with respect to more than three hundred thousand (300,000) shares of Common Stock in the aggregate. If an Award is to be settled in cash, the number of shares of Common Stock on which the Award is based shall count toward the individual share limit; and
   
(iii) A ten percent shareholder shall not be granted an Incentive Stock Option unless the Option exercise price is at least 110% of the fair market value of the common stock at the grant date and the option is not exercisable after the expiration of five years from the grant date.

 

Total stock options outstanding at September 30, 2016 and December 31, 2015, under the 2006 Stock Plan and 2015 Equity Incentive Plan were 1,451,861 and 1,047,450 of which 756,162 and 688,452 of these options were vested at September 30, 2016 and December 31, 2015, respectively. Stock based compensation was approximately $0.4 and $0.2 million for the three months ended September 30, 2016 and 2015, respectively. Stock based compensation was approximately $0.9 and $1.0 million for the nine months ended September 30, 2016 and 2015, respectively.

 

2015 Short-Term Non-Qualified Option Grants

 

On April 8, 2015, the Compensation Committee and the Board of Directors granted short term non-qualified stock options totaling 92,641 and 29,771 stock options under the 2006 Stock Plan and the 2015 Equity Incentive Plan, respectively, to employees and consultants of the Company. On April 9, 2015, the Compensation Committee and the Board of Directors granted an additional 9,404 and 794 stock options under the 2006 Stock Plan and the 2015 Equity Incentive Plan, respectively, all with a strike price of $6.30. These stock options vested immediately but the grants under the 2015 Equity Incentive Plan became exercisable upon ratification of the Plan at the annual meeting of shareholders, which took place on July 14, 2015.

 

On August 12, 2015, the Compensation Committee and the Board of Directors granted short term non-qualified stock options totaling 27,181 stock options under the 2015 Equity Incentive Plan to employees and consultants of the Company, all with a strike price of $6.30. These stock options vested immediately.

 

On November 20, 2015, the Compensation Committee and the Board of Directors granted short term non-qualified stock options totaling 225,831 stock options under the 2015 Equity Incentive Plan to employees and consultants of the Company, all with a strike price of $4.60. These stock options vested immediately.

 

Also granted under the 2006 Stock Plan were 50,213 and 2,889 non-qualified stock options in 2016 and 2015 respectively, as equity compensation in lieu of cash with strike prices ranging from $1.74 to $6.25. In 2015, 4,634 non-qualified stock options were granted from the 2015 Equity Incentive Plan, as equity compensation in lieu of cash with strike prices ranging from $4.15 to $6.25.

 

These stock options have an expected life of 1.5 -5 years, and a contractual term of 3-10 years, a fair value of between $0.23 and $4.22 per stock option, a risk free rate ranging between 0.42% to 1.76%, and volatility ranging between 76% to 94%, as measured on the grant date. The expected option term was calculated using the simplified method as we do not have sufficient historical option data to provide a better estimate of the expected option term. Under this method, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option, which results in a reduction of the estimated option value and consequently the stock option expense. The risk free rate was based on the US Treasury Yield for the expected life of the options on the grant date. Expected dividends are estimated at $0.0, as we have never issued dividends and we have no current plans to issue dividends in the future.

 

2015 Long-Term Incentive Option Grants

 

Employees and Consultants Option Grants

 

On April 8, 2015, August 12, 2015, and November 20, 2015, the Compensation Committee and the Board of Directors granted long term incentive stock options totaling 110,199, 15,922 and 509,247 respectively, under the 2015 Equity Incentive Plan, the (“Plan”) to employees and consultants of the Company. 376,998 of the long term incentive options granted on November 20, 2015, were contingent on shareholder approval which occurred on May 12, 2016, at the annual meeting of stockholders. These stock options vest 1/3 on each annual anniversary date over three years. These stock options have a strike price ranging from $4.60 to $6.30 and the stock options have a fair value ranging from $1.28 to $4.57, based on a risk free rate of between 1.15% and 1.87%, volatility between 86% and 88%, and an expected life of nine years. The expected life is calculated using the simplified method as we do not have sufficient historical option data to provide a better estimate of the expected option term. These options have a 10 year contractual term. The risk free rate was based on the US Treasury Yield for the expected life of the options on the measurement date. Expected dividends are estimated at $0.0, as we have never issued dividends and we have no current plans to issue dividends in the future. Grants to our consultants were re-measured as of September 30, 2016. This re-measured stock based compensation for options issued to consultants was not significant. We estimated future pre-vest forfeitures to be 1.5%, based on historical information.

 

Director Option Grants

 

On April 8, 2015, August 12, 2015, and November 20, 2015, the Compensation Committee and the Board of Directors granted 22,600, 4,608, and 75,468 respectively, of long term non-qualified stock options under the 2015 Equity Incentive Plan to the Board of Directors of the Company. 55,868 of the long term incentive options granted on November 20, 2015, were contingent on shareholder approval which occurred on May 12, 2016, at the annual meeting of stockholders. These stock options fully vest on the first annual anniversary date of the grant. These stock options have a strike price between $4.60 and $6.30, and the stock options have a fair value of between $3.25 to $4.41, based on a risk free rate between 1.46% and 1.79%, volatility between 86% and 87%, and an expected life of 5.5 years. The expected life is calculated using the simplified method as we do not have any history to provide a better estimate of the expected option term. These options have a 10 year contractual term. The risk free rate was based on the US Treasury Yield Curve for the expected life of the options on the grant date. Expected dividends are estimated at $0.0, as we have never issued dividends and we have no current plans to issue dividends in the future.

 

Stock option transactions to the employees, directors and consultants are summarized as follows for the nine months ended September 30, 2016:

 

 
 
 
 
 
 
 
 

 
 
Options

Outstanding

 
 
 
 
 
 
 
 

Weighted
Average

Exercise

Price

 
 
 
 
 
 
 
 
Weighted
Average
Grant Date
Fair Value
 
 
 
 
Beginning of the period     1,047,450     $ 18.50     $ 20.30  
Granted     483,079       4.71       2.83  
Exercised     -       -       -  
Forfeited     (78,668 )     101.57       101.02  
Expired     -       -       -  
End of the period     1,451,861     $ 9.41     $ 7.03  
                         
Options exercisable     756,162     $ 13.36     $ 10.31  

 

Stock option transactions to the employees, directors and consultants are summarized as follows for the year ended December 31, 2015:

 

 
 
 
 
 
 
 
 

 
 
Options

Outstanding

 
 
 
 
 
 
 
 
Weighted
Average
Exercise
Price
 
 
 
 
 
 
 
 
Weighted
Average
Grant Date
Fair Value
 
 
 
 
Beginning of the year     405,344     $ 45.95     $ 53.05  
Granted     698,323       5.40       3.70  
Exercised     -       -       -  
Forfeited     (22,883 )     33.15       30.30  
Expired     (33,334 )     67.50       64.20  
End of the year     1,047,450     $ 18.50     $ 20.30  
                         
Options exercisable     688,452     $ 24.75     $ 8.40  

 

A summary of the status of the Company’s non-vested options as of September 30, 2016 and December 31, 2015, and changes during the nine months ended September 30, 2016 and the year ended December 31, 2015, is presented below:

 

 
 
 
 
 
 
 
 
 Shares  
 
 
 
 
 
 
 

Weighted- Average

Fair Value
Grant Date

 
 
 
 
 
 
 
 

 Weighted

Average

Exercise

Price

 
 
 
 
Non-vested Shares                  
Non-vested at January 1, 2015     92,467     $ 8.55     $ 12.75  
Granted     698,323       3.70       5.40  
Vested     (431,789 )     4.00       5.90  
Forfeited     -       -       -  
Non-vested - December 31, 2015     359,001     $ 4.55     $ 6.70  
                         
Granted     483,079     $ 2.83     $ 4.71  
Vested     (146,381 )     3.76       7.27  
Forfeited     -       -       -  
Non-vested - September 30, 2016     695,699     $ 3.45     $ 5.12  

 

As of September 30, 2016, there was approximately $1.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.86 years. There was substantially no intrinsic value for the stock options outstanding at September 30, 2016 and December 31, 2015.

 

The above tables include options issued and outstanding as of September 30, 2016 and December 31, 2015, as follows:

 

i) A total of 51,051 non-qualified 10 year options have been issued, and are outstanding, to advisory board members at exercise prices of $22.50 to $72.00 per share.
   
ii) A total of 1,225,147 non-qualified 5-10 year options have been issued, and are outstanding, to our directors, officers, and employees at exercise prices of $1.74 to $73.50 per share. From this total, 376,769 options are outstanding to the Chief Executive Officer who is also a director, with remaining contractual lives of 1.2 years to 9.4 years. All other options issued to directors, officers, and employees have a remaining contractual life ranging from 0.01 years to 9.9 years.
   
iii) A total of 175,663 non-qualified 3-10 year options have been issued, and are outstanding, to our consultants at exercise prices of $4.04 to $52.50 per share.

 

The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at September 30, 2016:

 

    Stock Options Outstanding     Stock Options Vested  
    Weighted                 Weighted              
    Average                 Average              
    Remaining           Weighted     Remaining           Weighted  
    Contractual     Number     Average     Contractual     Number     Average  
    Life     of     Exercise     Life     of     Exercise  
Exercise Prices     -Years     Awards     Price       -Years     Awards     Price  
                                         
$1.74-$4.50     6.90       9,993     $ 3.25       6.90       9,993     $ 3.25  
$4.51-$6.00     9.14       812,033     $ 4.60       9.14       227,318     $ 4.60  
$6.01-$20.00     6.75       451,843     $ 7.61       6.64       340,849     $ 7.53  
$20.01-$45.00     2.49       144,683     $ 31.47       2.49       144,683     $ 31.47  
$45.01-$73.50     0.95       33,309     $ 57.13       0.95       33,309     $ 57.13  
Total     7.53       1,451,861     $ 9.41       6.35       756,162     $ 13.36  

 

The following table provides certain information with respect to the above-referenced stock options that are outstanding and exercisable at December 31, 2015:

 

    Stock Options Outstanding     Stock Options Vested  
    Weighted                 Weighted              
    Average                 Average              
    Remaining           Weighted     Remaining           Weighted  
    Contractual     Number     Average     Contractual     Number     Average  
    Life     of     Exercise     Life     of     Exercise  
Exercise Prices     -Years     Awards     Price       -Years     Awards     Price  
                                         
$4.15-$6.30     9.70       698,323     $ 5.38       9.58       393,145     $ 5.31  
$12.75-$25.00     3.26       129,141     $ 15.52       3.20       75,321     $ 17.50  
$25.05-$64.50     3.04       133,648     $ 37.93       3.04       133,648     $ 37.93  
$67.50-$94.50     0.63       38,338     $ 73.77       0.63       38,338     $ 73.77  
$96.00-$119.25     0.12       48,000     $ 119.25       0.12       48,000     $ 119.25  
Total     7.28       1,047,450     $ 18.50       6.46       688,452     $ 24.75  

 

We use the historical volatility of our stock price over the number of years that matches the expected life of our stock option grants or we use the historical volatility of our stock price since January 5, 2006, the date we announced that we were becoming a public company, to estimate the future volatility of our stock. At this time we do not believe that there is a better objective method to predict the future volatility of our stock for options with an expected term that is greater than our stock trading history. Prior to January 1, 2015, we estimated the life of our option awards based on the full contractual term of the option grant. To date we have had very few exercises of our option grants, and those stock option exercises had occurred just before the contractual expiration dates of the option awards. Since the strike price of most of our outstanding awards is greater than the price of our stock, generally awards have expired at the end of the contractual term. For options granted after January 1, 2015, we have applied the simplified method to estimate the expected term of our option grants as it is more likely that these options may be exercised prior to the end of the term. We estimate the effect of future forfeitures of our option grants based on an analysis of historical forfeitures of unvested grants, as we have no better objective basis for that estimate. The expense that we have recognized related to our grants includes the estimate for future pre-vest forfeitures. We will adjust the actual expense recognized due to future pre-vest forfeitures as they occur. We have estimated that 1.5% of our option grants will be forfeited prior to vesting.

 

Weighted average assumptions used in the Black Scholes option-pricing model for the nine months ended September 30, 2016 and the year ended December 31, 2015, were as follows:

 

    Nine months ended     Year ended  
    September 30,     December 31,  
    2016     2015  
             
Average risk-free interest rate     1.69 %     1.64 %
Average expected life- years     5.5       5.38  
Expected volatility     86.63 %     86.66 %
Expected dividends   $ 0.0     $ 0.0  

 

Stock-based compensation expense includes the expense related to (1) grants of stock options, (2) grants of restricted stock, (3) stock issued as consideration for some of the services provided by our directors and strategic advisory council members, and (4) stock issued in lieu of cash to pay bonuses to our employees and contractors. Grants of stock options and restricted stock are awarded to our employees, directors, consultants, and board members and we recognize the fair value of these awards ratably as they are earned. The expense related to payments in stock for services is recognized as the services are provided.

 

Stock-based compensation expense is recorded under the financial statement captions cost of services provided, general and administrative expenses and research and development expenses in the accompanying condensed consolidated statements of operations. For the nine months ended September 30, 2016 and 2015, we recognized stock-based compensation of approximately $0.9 million and $0.8 million, respectively. Related income tax benefits were not recognized, as we incurred a tax loss for both periods.