Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

14. Stock-Based Compensation

Equity Incentive Plans – The Company adopted the 2013 Equity Compensation Plan under which the Company reserved 62,500 shares of common stock for the purpose of providing equity incentives to employees, officers, directors and consultants including options, restricted stock, restricted stock units, stock appreciation rights, other equity awards, annual incentive awards and dividend equivalents. The Company subsequently amended the plan to increase the number of authorized shares of common stock under the plan to 225,000 shares, which the Company’s stockholders approved on June 3, 2015.

Stock Options

The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The risk free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, the expected life is based on the estimated average of the life of options using the simplified method, and forfeitures are estimated on the date of grant based on certain historical data. The Company utilizes the simplified method to determine the expected life of its options due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The following table summarizes the Company’s stock option activity for the year ended December 31, 2016:

	Number of Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding - December 31, 2015		19,653		$	30.00			8.0	$	-
Granted		57,500			8.19
Exercised		-			-
Forfeited or Canceled		(7,203	)		(30.11	)
Outstanding – December 31, 2016		69,950		$	12.07			9.0	$	156,975

Exercisable – December 31, 2016		29,430			15.96			8.1	$	52,326

As discussed in Note 12, the Company granted 57,500 stock options to Ms. Butkevich in connection with her Employment Agreement. These options had a fair value of $230,575, using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate		1.14%
Expected dividend yield		0.00%
Expected volatility		53.96%
Expected term	5.5 years

The options are exercisable at an exercise price of $8.19 per share over a ten-year term and vest over three years. The Company recorded $102,480 as compensation expense during the year ended December 31, 2016 pertaining to this grant.

On March 23, 2015, the Company granted 4,109 stock options to certain directors for future services. These options had a grant date fair value of $61,443 using the Black-Sholes option-pricing model with the following assumptions:

Risk-free interest rate		1.41%
Expected dividend yield		0.00%
Expected volatility		39.47%
Expected term	5.5 years

The options are exercisable at an exercise price of $39.20 per share over a ten-year term and vest over one year. The Company recorded $15,379 and $46,080 as compensation expense during the years ended December 31, 2016 and 2015, respectively, pertaining to this grant.

The Company recorded non-cash compensation expense of approximately $154,000 and $105,000 as a component of general and administrative expenses in the accompanying consolidated statements of operations for the years ended December 31, 2016 and 2015, respectively, pertaining to stock options.

Total unrecognized compensation expense related to unvested stock options at December 31, 2016 amounts to approximately $135,000 and is expected to be recognized over a remaining weighted average period of 1.2 years.

Warrants

The following table summarizes the Company’s warrant activity for the year ended December 31, 2016:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding – December 31, 2015		45,314		$	66.72		3.5	$	-
Granted		468,750			6.80
Exercised		(343,750	)		2.00
Forfeited/Canceled/Expired		-			-
Outstanding – December 31, 2016		170,314		$	32.44		4.3	$	-

Exercisable – December 31, 2016		170,314		$	32.44		4.3	$	-

As discussed in Note 8, on June 30, 2016, the Company granted warrants to purchase 468,750 shares of common stock. The fair value of the warrants issued of $783,458 has been recorded as a direct deduction from the carrying amount of Master Credit Facility.

The Company did not grant any warrants to purchase shares of common stock during the year ended December 31, 2015.

A summary of the changes in the Company’s unvested warrants is as follows:

	Number of Warrants			Weighted Average Grant Date Fair Value
Unvested – December 31, 2015		-		$	-
Granted		468,750			1.67
Vested		(468,750	)		(1.67	)
Forfeited/Canceled/Expired		-			-
Unvested – December 31, 2016		-		$	-

On November 7, 2016, warrants to purchase an aggregate of 343,750 shares of common stock were exercised for an aggregate exercise price of $687,500.

Restricted Stock

A summary of restricted stock activity for the year ended December 31, 2016 is as follows:

	Number of Shares
Unvested - December 31, 2015		5,556
Granted		-
Vested		(2,778	)
Forfeited or Canceled		-
Unvested – December 31, 2016		2,778

The Company recorded non-cash compensation expense of $110,668 and $341,221 as a component of general and administrative expenses in the accompanying consolidated statements of operations for the years ended December 31, 2016 and 2015, respectively, pertaining to restricted stock.

Total unrecognized compensation expense related to unvested restricted stock at December 31, 2016 amounts to $101,445 and is expected to be recognized over a weighted average period of 1.2 years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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