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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2012
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
5. Stock-Based Compensation

 

Stock Incentive Plan

 

During 2001, the Company’s Board of Directors and stockholders adopted the 2001 Stock Incentive Plan (the “2001 Stock Plan”). The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2001 Stock Plan shall not exceed 250,000. All awards pursuant to the 2001 Stock Plan shall terminate upon the termination of the grantee’s employment for any reason. Awards include options, restricted shares, stock appreciation rights, performance shares and cash-based awards (the “Awards”). The 2001 Stock Plan contains certain anti-dilution provisions in the event of a stock split, stock dividend or other capital adjustment, as defined in the plan. The 2001 Stock Plan provides for a Committee of the Board to grant awards and to determine the exercise price, vesting term, expiration date and all other terms and conditions of the awards, including acceleration of the vesting of an award at any time. As of December 31, 2012, there were 1,066,007 options issued and outstanding under the 2001 Stock Plan.

On March 20, 2007, the Company’s Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 2,500,000 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. This plan was approved by stockholders on November 2, 2007. The exercise price of stock options under the 2007 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 plan shall not exceed 250,000. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of December 31, 2012, there are 872,739 options issued and outstanding under the 2007 Stock Plan.

 

On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 3,000,000 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various period from the date of grant, and generally expire ten years after the grant date. As of December 31, 2012, there are 2,515,000 options issued and outstanding under the 2010 Stock Plan.

 

In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. There is no deferred compensation recorded upon initial grant date, instead, the fair value of the stock-based payment is recognized ratably over the stated vesting period.

 

The Company has applied fair value accounting for all share based payment awards since inception. The fair value of each option or warrant granted is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes assumptions used in the years ended December 31, 2012 and 2011 are as follows:

 

    Year ended December 31,
    2012   2011
Exercise price   $1.69 - $2.47   $0.49 - $2.22
Expected dividends   0%   0%
Expected volatility   108% - 174%   175% - 188%
Risk fee interest rate   0.37% - 1.98%   1.30% - 3.58%
Expected life of option   5 - 10 years   5 - 7 years
Expected forfeitures   0%   0%

 

The Company records stock-based compensation based upon the stated vested provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:

 

  · immediate vesting,
  · half vesting immediately and the remainder over three years,
  · quarterly over three years,
  · annually over three years,
  · one-third immediate vesting and remaining annually over two years,
  · one half immediate vesting with remaining vesting over nine months,
  · one quarter immediate vesting with the remaining over three years
  · one quarter immediate vesting with the remaining over 33 months; and
  · monthly over three years.

 

During 2012, the Company granted 2,075,000 options to employees and consultants having an approximate fair value of $4.5 million based upon the Black-Scholes option pricing model.  During 2011, the Company granted 557,002 options to employees and consultants having an approximate fair value of $609,000 based upon the Black-Scholes option pricing model.

 

Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued employees for the years ended December 31, 2012 and 2011 were $1.4 million and $268,000, respectively. Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to consultants for the years ended December 31, 2012 and 2011 were $216,000 and $705,000, respectively.

  

                Weighted        
                Average        
          Weighted     Remaining     Aggregate  
          Average Exercise     Contractual     Intrinsic  
    Options     Price     Life     Value  
Balance – December 31, 2010     2,539,091     $ 1.32       6.97 years     $ 1,028,000  
Granted     557,002     $ 1.26                  
Exercised     (23,333 )   $ 0.57                  
Forfeited     (93,750 )   $ 0.59                  
Balance – December 31, 2011     2,979,010     $ 1.34       6.01 years     $ -  
Granted     2,075,000     $ 2.21                  
Exercised     (374,851 )   $ 0.34                  
Forfeited     (225,413 )   $ 2.37                  
Balance – December 31, 2012 – outstanding     4,453,746     $ 1.78       6.43 years     $ 1,308,000  
Balance – December 31, 2012 – exercisable     2,891,877     $ 1.60       5.71 years     $ 1,160,000  
                                 
Grant date fair value of options granted – 2012           $ 4,467,984                  
Weighted average grant date fair value – 2012           $ 2.15                  
Grant date fair value of options granted – 2011           $ 609,000                  
Weighted average grant date fair value – 2011           $ 1.09                  

  

The options outstanding and exercisable at December 31, 2012 are as follows:

 

Options Outstanding   Options Exercisable
          Weighted     Weighted Average         Weighted     Weighted Average
Range of         Average     Remaining         Average     Remaining
Exercise Price   Options     Exercise Price     Contractual Life   Options     Exercise Price     Contractual Life
$0.09 - $2.00     2,162,362     $ 1.78     5.76 years     1,801,187     $ 1.14     5.52 years
$2.01 - $3.00     2,212,227       2.26     7.15 years     1,011,533       2.17     6.14 years
$3.01 - $6.00     79,157       4.87     4.49 years     79,157       4.87     4.49 years
$0.09 - $6.00     4,453,746     $ 1.78     6.43 years     2,891,877     $ 1.60     5.71 years

 

The options outstanding and exercisable at December 31, 2011 are as follows:

 

Options Outstanding   Options Exercisable
          Weighted     Weighted Average         Weighted     Weighted Average
Range of         Average     Remaining         Average     Remaining
Exercise Price   Options     Exercise Price     Contractual Life   Options     Exercise Price     Contractual Life
$0.09 - $4.57     2,889,011     $ 1.20     6.11 years     2,364,608     $ 1.29     5.72 years
$4.58 - $9.05     89,999       5.93     2.76 years     89,999       5.93     2.76 years
$0.09 - $9.05     2,979,010     $ 1.34     6.01 years     2,454,607     $ 1.46     5.62 years

 

The following is a summary of the Company’s non-vested stock options at December 31, 2012:

 

          Weighted Average  
    Unvested     Grant  
    Stock Options     Date Fair Value  
Non-vested – December 31, 2011     524,403     $ 0.82  
Granted     2,075,000       2.21  
Vested/Exercised     (891,332 )     0.81  
Forfeited/Cancelled     (146,202 )     1.79  
Non-vested – December 31, 2012     1,561,869     $ 2.11  
Weighted average remaining period for vesting     2.09 years          

 

As of December 31, 2012, total unrecognized stock-based compensation expense related to stock options was $3.2 million, which is expected to be expensed through September 2015.

 

FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from financing activities.  Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options.  The Company did not record any excess tax benefits in 2012 or 2011.  Cash received from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2012 and 2011 was $127,000 and $15,000, respectively.

 

Stock Warrants and Derivative Liabilities

 

On October 25, 2012, the Company entered into a Common Stock Purchase Agreement with certain accredited investors. As part of this agreement, the Company issued warrants to purchase 635,855 shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price of $1.60 and a life of five years. The warrants vested immediately and expire October 25, 2017. Since these warrants were granted as part of an equity raise, the Company has treated them as a direct offering cost. The result of the transaction has no affect to equity. As of December 31, 2012, all the warrants were outstanding.

 

On March 15, 2012, the Company entered into a consulting agreement for a financial communications program, for a period of twelve months that began on February 20, 2012. As compensation for such program, the consultant is paid a monthly fee and will be issued a performance warrant exercisable for 250,000 shares of the Company’s common stock based on achievement of certain stock price milestones. Upon initiation of the program, 50,000 of the performance warrants vested. The performance warrant is exercisable for a period of two years from the date of issuance for an exercise price equal to the price ($2.20 per share) of the Company’s common stock on the date of execution (March 15, 2012). The expense recorded for the year ended December 31, 2012 approximated $63,000 and was estimated using the Monte Carlo valuation model. The assumptions used by the Company are summarized in the following table:

 

Exercise price   $ 2.20  
Expected dividends     0 %
Expected volatility     110 %
Risk free interest rate     0.26 %
Expected life of warrant     2 years  

 

On December 20, 2011, the Company entered into a consulting agreement for financial advisory services, for a period of twelve months. As compensation for such services, the consultant is paid a monthly fee and on February 2, 2012, was issued a warrant exercisable for 100,000 shares of the Company’s common stock. The warrant is exercisable upon issuance for a period of five years from the date of issue at an exercise price equal to the price of the Company’s common stock on the date of issue. The fair value of the warrant approximated $200,000 and was measured using the Black-Scholes valuation model. All of this expense was recorded in the year ended December 31, 2012. The assumptions used by the Company are summarized in the following table:

 

Exercise price   $ 1.14  
Expected dividends     0 %
Expected volatility     174 %
Risk free interest rate     0.71 %
Expected life of warrant     5 years  

 

On January 28, 2011, the Company entered into a Common Stock Purchase Agreement with three institutional investors. As part of this agreement, the Company issued warrants to purchase 1,428,572 shares of common stock. Each warrant was exercisable for thirteen months at $2.00 per share and subsequently exchanged for new warrants with substantially the same terms as the original warrants except that the expiration date was extended for two months. The original warrants had an anti-dilution price protection feature; if the Company issues securities at a price per share that is less than $2.00 per share, the warrant holders will be ratcheted down to the lower offering price. However, the Company had instituted a floor price of $1.40 per share in connection with the price protection.

 

On April 6, 2011, the Company entered into another Common Stock Purchase Agreement that triggered the ratchet provision and re-set the price of these warrants to $1.40 per share. Due to the re-set to the floor price, the warrant liability was marked-to-market and reclassified to additional paid-in capital since it ceased to contain the provisions of a derivative liability. As of December 31, 2012, all of these warrants have been exercised.

 

The warrants were initially recorded as liabilities at their estimated fair value on the commitment date, which was $716,000 with subsequent changes in estimated fair value recorded as a warrant expense in the Company’s statement of operations at each subsequent reporting period. On April 6, 2011, the fair value of the warrant liability was $1.5 million, which represented an increase in fair value of $765,000. The fair value was measured using the Black-Scholes valuation model. The assumptions used by the Company are summarized in the following table:

 

          Remeasurement  
    Commitment     Date  
    Date     April 6, 2011  
Closing stock price   $ 1.39     $ 2.08  
Expected dividend rate     0 %     0 %
Expected stock price volatility     117.1 %     104.6 %
Risk free interest rate     0.28 %     0.29 %
Expected life (years)     1.08       0.85  

 

On August 10, 2011, the Company entered into an agreement to exchange the warrants issued in connection with the January 28, 2011 financing for new warrants with substantially the same terms as the original warrants except that in the new warrants the expiration date was extended by two months.

 

On April 6, 2011, the Company entered into a Common Stock Purchase Agreement with an institutional investor. As part of this agreement, the Company issued a warrant to purchase 844,391 shares of common stock. The warrant was initially exercisable for thirteen months at $2.0725 per share. The warrant had an anti-dilution price protection feature; that provided if the Company issues securities at a price per share that is less than $2.0725 per share, the exercise price of the warrant will be ratcheted down to the lower offering price. On July 28, 2011, the warrant was exchanged for a new warrant with substantially similar terms except that in the new warrant (i) the anti-dilution price protection was eliminated, (ii) the exercise price was lowered to $1.00, (iii) the expiration date was extended for an additional three months to August 12, 2012, and (iv) the warrant’s initial exercise date was changed to January 2012. Due to this warrant exchange, the warrant liability was marked-to-market and reclassified to additional paid-in capital since it ceased to contain the provisions of a derivative liability. As of December 31, 2012, all of these warrants have been exercised.

 

The warrant is initially recorded as a liability at its estimated fair value on the commitment date, which was $776,000 with subsequent changes in estimated fair value recorded as a warrant expense in the Company’s statement of operations at each subsequent period. On July 28, 2011, the fair value of the warrant liability was $253,000, which represented a decrease in fair value of $523,000. The fair value is measured using the Black-Scholes valuation model. The assumptions used by the Company are summarized in the following table:

 

          Remeasurement  
    Commitment     Date  
    Date     July 28, 2011  
Closing stock price   $ 2.08     $ 0.84  
Expected dividend rate     0 %     0 %
Expected stock price volatility     112.1 %     105.6 %
Risk free interest rate     0.29 %     0.21 %
Expected life (years)     1.08       1.04  

 

The following table summarizes the estimated fair value of the warrant liabilities at December 31, 2011(in thousands):

 

Balance at December 31, 2010   $ -  
Warrant liability     1,492  
Change in fair value of warrant liability     242  
Reclassification to additional paid-in capital     (1,734 )
Balance at December 31, 2011   $ -  

 

A summary of warrant activity for the Company for the year ended December 31, 2011 and for the year ended December 31, 2012 is as follows:

 

          Weighted Average  
    Number of Warrants     Exercise Price  
Balance at December 31, 2010     1,131,078     $ 3.49  
Granted     2,272,963       1.25  
Exercised     (15,615 )     1.03  
Forfeited     (129,240 )     2.08  
Balance as December 31, 2011     3,259,186       1.95  
Granted     985,855       1.71  
Exercised     (1,768,167 )     1.11  
Forfeited     (844,373 )     3.32  
Balance as December 31, 2012     1,632,501     $ 1.99  

 

Stock-based compensation expense included in general and administrative expenses relating to warrants issued to consultants for the year ended December 31, 2012 was $271,000. There was no stock-based compensation for warrants for the year ended December 31, 2011.

A summary of all outstanding and exercisable warrants as of December 31, 2012 is as follows:

 

Exercise
Price		     Warrants
Outstanding		     Warrants
Exercisable		     Weighted Average
Remaining
Contractual Life		     Aggregate
Intrinsic Value		  
$ 1.14       100,000       100,000       4.09 years     $ 62,000  
$ 1.32       18,182       18,182       3.00 years     $ 8,000  
$ 1.60       635,855       635,855       4.83 years     $ 102,000  
$ 2.20       250,000       50,000       1.20 years     $    
$ 2.22       517,257       517,257       3.91 years     $ -  
$ 3.30       61,207       61,207       3.30 years     $ -  
$ 3.75       50,000       50,000       3.13 years     $ -  
$ 1.99       1,632,501       1,432,501       3.80 years     $ 172,000  

 

Options of Subsidiary

 

As of December 31, 2012, Epitope, a majority-owned subsidiary of Synthetic Biologics, has 50,000 stock options outstanding and 40,000 stock options exercisable. These stock options have an exercise price of $0.001 and a remaining contractual life of 5.50 years.