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STOCK BASED COMPENSATION
 12 Months Ended
Dec. 31, 2013
Notes to Financial Statements  
7. STOCK BASED COMPENSATION

Restricted Shares of Common Stock

 

During the years ended December 31, 2013 and 2012, the Company issued 650,000 and 540,000 restricted share grants to consultants and directors as compensation for services, respectively.   A summary of the activity of restricted shares of common stock for the years ended December 31, 2013 and 2012 is as follows:

 

    Shares    

Weighted Average Grant Date Fair Value

  
             
Non-vested on Dec 31, 2011     -     $ -  
                 
Granted     540,000       0.61  
Vested     (540,000 )     0.61  
Forfeited     -       -  
                 
Nonvested on Dec 31, 2012     -     $ -  
                 
Granted     650,000       0.84  
Vested     (545,000 )     0.83  
Forfeited     (105,000 )     0.90  
                 
Non-vested on Dec 31, 2013     -     $ -  

 

During the years ended December 31, 2013 and 2012, 545,000 and 540,000 of restricted shares of common stock with a fair value of approximately $449,750 and $485,391 respectively, became fully vested. The aggregate market value of the share grants for 2013 and 2012 was $544,250 and $330,650, respectively, at the date of grant, which is amortized to expense ratably over the related service period.

 

The Company recognized $349,812 and $485,391 in stock compensation expense related to restricted share grants and is included in selling, general and administrative expenses in the consolidated statement of operations for the years ended December 31, 2013, and 2012, respectively.  As of December 31, 2013, there was approximately $99,937 in unrecognized compensation cost related to restricted share awards and the related weighted-average period over which it is to be amortized is approximately six  (6) months.

 

Stock Warrants

 

Historically, the Company issued warrants to purchase common stock to employees and consultants as compensation for services.  For the year ended December 31, 2013, the Company issued warrants to purchase an aggregate of 1,200,000 common shares to consultants as compensation for services.  The Company did not issue warrants as compensation for services in the year ended December 31, 2012.  The stock warrants have an exercise price of $0.65 per share.  Such stock warrants are exercisable for a period that varies from 3 to 5 years from the date of issuance. The estimated fair value of these warrants was determined to be $428,427 based on the Black-Scholes option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free interest rate range of (0.38% - 0.70%) and an expected volatility range of (55.7% - 58.2%) based on the historical and estimated future volatility of the Corporation and its peer-group.  The Company amortizes the fair value of the stock warrants to expense ratably over the related service period.

 

The following table summarizes the warrants outstanding and the number of shares of common stock subject to exercise as of December 31, 2013 and 2012 and the changes therein during the years then ended:

 

    Employees     Services  
    Shares    

Weighted Average Exercise Price

     Shares    

Weighted Average Exercise Price

  
                         
Outstanding and Exercisable at December 31, 2011     -     $ -       250,000     $ 1.69  
                                 
Warrants granted     -       -       -       -  
Warrants exercised     -       -       -       -  
Warrants expired/cancelled      -       -       -       -  
                                 
Outstanding and Exercisable at December 31, 2012     -     $ -       250,000     $ 1.69  
                                 
Warrants granted     -       -       1,200,000       0.65  
Warrants exercised     -       -       -       -  
Warrants expired/cancelled     -       -       (600,000 )     0.65  
                                 
Outstanding and Exercisable at December 31, 2013     -     $ -       850,000     $ 0.96  

 

The following table summarizes information about stock warrants outstanding and exercisable as of December 31, 2013:

 

    Outstanding   Exercisable  

Range of Exercise Price

  

Number of Shares

  

Weighted Average Exercise Price

  

Weighted Average

Remaining Life

(Years)

  

Number of Shares

  

Weighted Average Exercise Price

  

Weighted Average Remaining Life

(Years)

  
                           
$0.65     600,000   $ 0.65     4.31     600,000   $ 0.65     4.31  
                                       
$1.52 - $1.80     250,000   $ 1.69     2.47     250,000   $ 1.69     2.47  

 

The weighted average fair value of the warrants granted was $0.36 per share for the year ended December 31, 2013.  Stock compensation expense related to stock warrants for the years ended December 31, 2013 and 2012 was $163,690 and $27,475, respectively. As of December 31, 2013, there was no unrecognized compensation cost related to stock warrant awards.

 

Stock Options

 

In May 2012, we adopted the Assured Pharmacy, Inc. 2012 Incentive Compensation Plan (the “2012 Incentive Plan”). The 2012 Incentive Plan is intended to provide incentives that will attract and retain the best available directors, employees and appropriate third parties who can provide us with valuable services.  These purposes may be achieved through the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, performance stock awards and phantom stock awards.

 

The 2012 Incentive Plan permits the grant of awards that may deliver up to an aggregate of 1,667,667 shares of common stock, further subject to limits on the number of shares that may be delivered pursuant to incentive stock options, on the shares that may be delivered on the awards to any individual in a single year and on the number of shares that may be delivered on certain awards that are performance-based awards, within the meaning of Section 162(m) of the Internal Revenue Code.  Awards may vest, in time, upon the occurrence of one or more events or by the satisfaction of performance criteria, or any combination. To the extent that awards are performance based, they may be based on one or more criteria, including (without limitation) earnings, cash flow, revenues, operating income, capital reissues, or other quantifiable company, customer satisfaction or market data, or any combination. In addition to common stock, awards may also be made in similar securities whose value is derived from our common stock. 

 

Awards with respect to which grant, vesting, exercisability or payment depend on the achievement of performance goals and awards that are options or stock appreciation rights granted to officers and employees will be intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Internal Revenue Code.  The 2012 Incentive Plan will be administered by the board of directors.

 

In May 2012, the Company awarded 525,000 options to purchase common stock under the 2012 Incentive Compensation Plan to three executives.  The options vest immediately and are exercisable for a period of 10 years from the date of issuance. The Company calculated the estimated fair value of these options using the Black-Scholes option pricing model assuming that there will be no dividends, using a 5 year estimated exercise period, a risk-free interest rate of 0.77%, and an expected volatility of 90.1% based upon the historical and expected volatility of the Company and its peer group.

 

At December 31, 2013, all options outstanding and exercisable are out of the money and accordingly, their intrinsic value is zero.

 

The following table summarizes the stock options outstanding and the number of shares of common stock subject to exercise as of December 31, 2013 and 2012 and the changes therein during the years then ended:

 

    Options Outstanding     Options Exercisable  
    Shares     Weighted Average Exercise Price     Shares     Weighted Average Exercise Price  
                         
Outstanding at December 31, 2011     1,315,556     $ 0.69       787,778     $ 0.69  
                                 
Options granted     525,000       0.60       525,000       0.60  
Options vested     -       -       263,889       0.68  
Options exercised     -       -       -       -  
Options expired/cancelled     -       -       -       -  
                                 
Outstanding at December 31, 2012     1,840,556     $ 0.66       1,576,667     $ 0.66  
                                 
Options granted     -       -       -       -  
Options vested     -       -       263,889       0.68  
Options exercised     -       -       -       -  
Options expired/cancelled     -       -       -       -  
                                 
Outstanding at December 31, 2012     1,840,556     $ 0.66       1,840,556     $ 0.66  

 

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2013:

 

      Outstanding     Exercisable  
                                       
Exercise Price    

Stock Options

Outstanding

    

Weighted Average Exercise Price Per Share

    

Weighted Average Remaining Contractual Term in Years

    

Stock Options Exercisable

    

Weighted

Average Exercise Price Per Share

    

Weighted Average Remaining Contractual Term in Years

  
                                       
$ 0.60       525,000     $ 0.60       8.35       525,000     $ 0.60       8.35  
                                                     
$ 0.68       1,305,556     $ 0.68       7.24       1,305,556     $ 0.68       7.24  
                                                     
$ 1.26       10,000     $ 1.26       6.20       10,000     $ 1.26       6.20  

 

The weighted average fair value of options granted was $0.60 for the year ended December 31, 2012.The Company recorded stock based compensation expense related to stock options for the years ended December 31, 2013 and 2012 of $115,462 and $334,695, respectively, which is reflected in selling, general and administrative expense in the consolidated statement of operations.  As of December 31, 2013, there was no unrecognized compensation cost related to stock option awards.

 

The Company has reserved at total of 2,690,556 shares of its common stock for incentive stock option and warrant awards outstanding to employees and consultants and an additional 1,142,667 shares of common stock for unissued options per the 2012 Incentive Plan.  The Company does not expect to repurchase shares during the year 2014.