Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.8
Stock-Based Compensation
12 Months Ended
Dec. 31, 2013
Share-Based Compensation [Abstract]  
Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Text Block]
6. Stock-Based Compensation
 
The Company grants stock options as incentive compensation to directors and as compensation for the services of independent contractors and consultants of the Company.
 
The fair value of each option awarded is estimated on the date of grant and subsequent measurement dates using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts. Expected volatilities are based on historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date. Expected life of the options is the average of the vesting term and the full contractual term of the options.
 
New transactions during the year ended December 31, 2013 that required an assessment of value pursuant to the Black-Scholes option-pricing model utilized the following inputs: exercise price per share - $0.13; stock price per share – $0.13; expected dividend yield – 0.00%; expected volatility – 262.0%; average risk-free interest rate – 1.51%; expected life – 5 years. There were no transactions entered into in prior periods that required re-evaluation of assessed value at December 31, 2013.
 
New transactions during the year ended December 31, 2012 that required an assessment of value pursuant to the Black-Scholes option-pricing model utilized the following inputs: exercise price per share - $0.65 to $1.00; stock price per share – $0.65; expected dividend yield – 0.00%; expected volatility – 148.4%; average risk-free interest rate – 0.78%; expected life – 5 years. For the purpose of assessing value for transactions requiring re-evaluation at December 31, 2012 that were entered into in prior periods, the Black-Scholes option-pricing model utilized the following inputs for the year ended December 31, 2012: exercise price per share - $0.98 to $1.00; stock price per share – $0.25; expected dividend yield – 0.00%; expected volatility – 128.4%; average risk-free interest rate – 0.24%; expected life – 3.50 to 4.00 years.
  
As the Company’s common stock commenced trading on September 24, 2007, the Company was able to utilize such trading data to generate revised volatility factors as of the various measurement dates.
 
On June 30, 2006, effective with the closing of the Exchange, the Company granted to Dr. Philip Palmedo, an outside director of the Company, stock options to purchase an aggregate of 200,000 shares of common stock, exercisable for a period of five years at $0.333 per share, with one-third of the options (66,666 shares) vesting immediately upon joining the Board and one-third vesting annually on each of June 30, 2007 and 2008. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $62,000 ($0.31 per share), of which $20,666 was charged to operations on June 30, 2006, and the remaining $41,334 was charged to operations ratably from July 1, 2006 through June 30, 2008. On June 30, 2011, these options to acquire 200,000 shares of common stock expired unexercised.
 
On June 30, 2006, effective with the closing of the Exchange, the Company also granted to Dr. Palmedo additional stock options to purchase 190,000 shares of common stock exercisable for a period of five years at $0.333 per share for services rendered in developing the business plan for Lixte, all of which were fully vested upon issuance. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $58,900 ($0.31 per share), and was charged to operations at June 30, 2006. On June 30, 2011, Dr. Palmedo exercised options to acquire 100,000 shares of common stock, which were part of this grant, on a cashless basis. Such cashless exercise resulted in Dr. Palmedo receiving a net of 66,020 shares of common stock. The remaining options to acquire 290,000 shares of common stock, which were also a part of this grant, expired unexercised on June 30, 2011.
 
On June 30, 2011, the Company granted to Dr. Palmedo stock options to purchase 200,000 shares of common stock, exercisable for a period of five years from the date of grant at $0.98 per share, which was the fair market value of the Company’s common stock on such date. The options vest ratably in equal quarterly installments of 25,000 shares beginning July 1, 2011. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $196,000 ($0.98 per share). During the years ended December 31, 2013 and 2012, the Company recorded charges to operations of $48,530 and $98,134, respectively, with respect to these options.
 
On June 30, 2006, effective with the closing of the Exchange, the Company granted to Dr. Stefan Madajewicz and Dr. Iwao Ojima, two members of its Scientific Advisory Committee, stock options to purchase an aggregate of 100,000 shares of common stock (50,000 each) exercisable for a period of five years at $0.333 per share, with one-half of the options vesting annually on each of June 30, 2007 and June 30, 2008. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was charged to operations ratably from July 1, 2006 through June 30, 2008.
 
In August 2008, Dr. Madajewicz resigned from his position and waived his right to his vested stock option to purchase 50,000 shares of common stock.
 
On June 30, 2011, Dr. Ojima exercised options to acquire 15,015 shares of common stock for a cash payment of $5,000. Dr. Ojima’s remaining options to acquire 34,985 shares of common stock expired unexercised.
 
On June 30, 2011, the Company granted to Dr. Ojima stock options to purchase 50,000 shares of common stock, exercisable for a period of five years from the date of grant at $0.98 per share, which was the fair market value of the Company’s common stock on such date. The options vest ratably in equal quarterly installments of 6,250 shares beginning July 1, 2011. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $49,000 ($0.98 per share). During the years ended December 31, 2013 and 2012, the Company recorded a charge (credit) to operations of $3,357 and $(650), respectively, with respect to these options.
 
On February 5, 2007, the Company entered into an agreement (the “Chem-Master Agreement”) with Chem-Master International, Inc. (“Chem-Master”), a company co-owned by Francis Johnson, a consultant to the Company, pursuant to which the Company granted a five-year option to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.333 per share. The fair value of this option, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $31,000 ($0.31 per share) which was charged to operations as research and development costs on February 5, 2007 as the option was fully vested and non-forfeitable on the date of issuance. The Company has the right to terminate the Chem-Master Agreement at any time during its term upon sixty days prior written notice. On February 5, 2009, provided that the Chem-Master Agreement had not been terminated prior to such date, the Company agreed to grant Chem-Master a second five-year option to purchase an additional 100,000 shares of the Company’s common stock at an exercise price of $0.333 per share. As of September 30, 2008, the Company determined that it was likely that this option would be issued. Accordingly, the fair value of the option was reflected as a charge to operations for the period from October 1, 2008 through February 5, 2009. The Company granted the second five-year option on February 5, 2009. On February 4, 2012, Chem-Master exercised the option to acquire 100,000 shares of common stock previously granted on February 5, 2007 for a cash payment of $33,333
  
On January 29, 2008, the Chem-Master Agreement was amended to extend its term to February 15, 2014. Pursuant to the amendment, the Company issued 100,000 shares of its restricted common stock and granted an option to purchase 200,000 shares of common stock. The option was exercisable for a period of two years from the vesting date at $1.65 per share, with one-half (100,000 shares) vesting on August 1, 2009, and one-half (100,000 shares) vesting on February 1, 2011. The restricted common stock issued, which was valued at $75,000, was charged to operations as research and development costs on January 29, 2008. The initial fair value of the option, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $96,000 ($0.48 per share) and was charged to operations ratably during the period from February 1, 2008 through February 1, 2011. On August 1, 2011, the option to acquire 100,000 shares of common stock that vested on August 1, 2009 expired unexercised. On February 1, 2013, the option to acquire the remaining 100,000 shares of common stock that vested on February 1, 2011 also expired unexercised.
 
On September 11, 2012, the Company granted to Chem-Master a stock option to purchase 500,000 shares of common stock, exercisable for a period of five years from the date of grant at $0.65 per share, which was the fair market value of the Company’s common stock on such date. The fair value of this option, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $293,450 ($0.59 per share), which was charged to operations as research and development costs on September 11, 2012, as the option was fully vested and non-forfeitable on the date of issuance. The option includes cashless exercise provisions.
 
On June 20, 2007, the Board of Directors of the Company approved the 2007 Stock Compensation Plan (the “2007 Plan”), which provides for the granting of awards, consisting of common stock options, stock appreciation rights, performance shares, or restricted shares of common stock, to employees and independent contractors, for up to 2,500,000 shares of the Company’s common stock, under terms and condition, as determined by the Company’s Board of Directors.
 
On September 12, 2007, in conjunction with his appointment as a director of the Company, the Company granted to Dr. Stephen Carter stock options to purchase an aggregate of 200,000 shares of common stock under the 2007 Plan, exercisable for a period of five years from vesting date at $0.333 per share, with one-half (100,000 shares) vesting annually on each of September 12, 2008 and 2009. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $204,000 ($1.02 per share), and was charged to operations ratably from September 12, 2007 through September 12, 2009. Effective April 20, 2010, Dr. Carter resigned as a director for personal reasons. Consequently, pursuant to the stock option agreement, Dr. Carter had twelve months from April 20, 2010 to exercise his stock options to acquire 200,000 shares of the Company’s common stock. On April 20, 2011, Dr. Carter’s stock options expired unexercised.
 
On September 12, 2007, the Company entered into a consulting agreement with Gil Schwartzberg, pursuant to which the Company granted to Mr. Schwartzberg stock options to purchase an aggregate of 1,000,000 shares of common stock, exercisable for a period of the earlier of four years from the vesting date or the termination of the consulting agreement at $1.00 per share, with one-half of the options (500,000 shares) vesting immediately and one-half of the options (500,000 shares) vesting on September 12, 2008. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $945,000 ($0.945 per share), of which $465,000 was attributed to the fully-vested options and was thus charged to operations on September 12, 2007. The remaining unvested portion of the fair value of the options was charged to operations ratably from September 12, 2007 through September 12, 2008. On September 12, 2011, options to acquire 500,000 shares of common stock expired unexercised. On September 12, 2012, options to acquire the remaining 500,000 shares of common stock expired unexercised.
  
 On October 15, 2009, the Company approved a first amendment to the above described consulting agreement with Gil Schwartzberg to extend it for an additional four years and granted to Mr. Schwartzberg stock options to purchase an additional aggregate of 1,000,000 shares of common stock, exercisable for a period of the earlier of four years from the vesting date or the termination of the consulting agreement at $1.00 per share, with one-half of the options (500,000 shares) vesting immediately and one-half (500,000 shares) vesting on October 15, 2010. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $750,000 ($0.75 per share) on October 15, 2009, of which $375,000 was attributed to the fully-vested options and was thus charged to operations on October 15, 2009. The remaining unvested portion of the fair value of the options was charged to operations ratably from October 15, 2009 through October 15, 2010. On October 15, 2013, options to acquire 500,000 shares of common stock expired unexercised.
 
On January 28, 2014, the Company entered into a second amendment to the Company’s consulting agreement with Gil Schwartzberg, a consultant and significant shareholder of the Company, as described at Note 9.
 
On October 5, 2011, the Company granted to Mr. Schwartzberg stock options to purchase an aggregate of 500,000 shares of common stock, exercisable for a period of the earlier of five years from the grant date or the termination of the consulting agreement at $1.00 per share. One-quarter of the options vested immediately, with the balance vesting in three equal quarterly installments beginning on January 5, 2012. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $325,000 ($0.65 per share) and was charged to operations ratably from October 5, 2011 through October 4, 2012. During the year ended December 31, 2012, the Company recorded a charge to operations of $210,410 with respect to these options.
 
  On September 11, 2012, the Company granted to Mr. Schwartzberg stock options to purchase 500,000 shares of common stock, exercisable for a period of the earlier of five years from the date of grant or the termination of the consulting agreement at $1.00 per share, which was the fair market value of the Company’s common stock on such date. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $286,100 ($0.57 per share), which was charged to operations on September 11, 2012, as the options were fully vested and non-forfeitable on the date of issuance.
 
On September 12, 2007, the Company entered into a consulting agreement with Francis Johnson, a co-owner of Chem-Master International, Inc., and granted to Professor Johnson stock options to purchase an aggregate of 300,000 shares of common stock, exercisable for a period of four years from the vesting date at $0.333 per share, with one-third (100,000 shares) vesting annually on each of September 12, 2008, 2009 and 2010. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $300,000 ($1.00 per share). The unvested portion of the fair value of the options was charged to operations from September 12, 2007 through September 12, 2010. On September 12, 2013 and 2012, options to acquire 100,000 shares expired unexercised.
 
On September 20, 2007, the Company entered into a one-year consulting agreement (the “Mirador Agreement”) with Mirador Consulting, Inc. (“Mirador”), pursuant to which Mirador was to provide the Company with various financial services. Pursuant to the Mirador Agreement, the Company agreed to pay Mirador $5,000 per month and also agreed to sell Mirador 250,000 shares of the Company’s restricted common stock for $250 ($0.001 per share). The fair value of this transaction was determined to be in excess of the purchase price by $262,250 ($1.049 per share), reflecting the difference between the $0.001 purchase price and the $1.05 price per share as quoted on the OTC Bulletin Board on the transaction date, and was charged to operations as stock-based compensation on September 20, 2007, since the shares were fully vested and non-forfeitable on the date of issuance.
 
On October 7, 2008, the Company appointed Dr. Mel Sorensen to its Board of Directors. Dr. Sorensen was paid an annual consulting fee of $40,000, payable in quarterly installments over a one year period commencing October 7, 2008, to assist the Company in identifying a strategic partner. Dr. Sorensen was also granted a stock option to purchase 200,000 shares of the Company’s common stock, exercisable at $0.50 per share for a period of five years from each tranche’s vesting date. The option vested as to 25,000 shares on January 1, 2009, and a further 25,000 shares vested on the first day of each subsequent calendar quarter until all of the shares were vested. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $100,000 ($0.50 per share), and was charged to operations ratably from October 7, 2008 through October 7, 2010.
  
Effective May 1, 2011, in connection with his election to the Company’s Board of Directors, Dr. Robert B. Royds was granted stock options to purchase 200,000 shares of the Company’s common stock, vesting 25,000 shares on May 1, 2011, and 25,000 shares quarterly thereafter until all of the shares are vested, exercisable for a period of five years from each tranche’s vesting date, at $0.98 per share, which was the fair market value of the Company’s common stock on such date. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $196,000 ($0.98 per share), and was charged to operations ratably from May 2, 2011 through February 1, 2013. During the year ended December 31, 2013 and 2012, the Company recorded charges to operations of $8,548 and $97,770, respectively, with respect to these options. Dr. Royds died on March 23, 2013. As a result of the death of Dr. Royds, pursuant to the stock option agreement, Dr. Royds' executor has twelve months from March 23, 2013 to exercise his stock options to acquire 200,000 shares of the Company’s common stock.
 
Effective September 16, 2012, in connection with her election to the Company’s Board of Directors, Dr. Kathleen P. Mullinix was granted stock options to purchase 200,000 shares of the Company’s common stock, vesting 25,000 shares on September 16, 2012, and 25,000 shares quarterly thereafter until all of the shares are vested, exercisable for a period of five years from the date of grant at $0.65 per share, which was the fair market value of the Company’s common stock on such date. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $118,000 ($0.59 per share), and is being charged to operations from September 16, 2012 through June 16, 2014. During the years ended December 31, 2013 and 2012, the Company recorded charges to operations of $58,690 and $31,790, respectively, with respect to these options.
 
  On December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. ("NDA") for consultation and advice in the field of oncology research and drug development. As part of the agreement, NDA agreed to cause its president, Dr. Daniel D. Von Hoff, M.D., to become a member of the Company's Scientific Advisory Committee.  In connection with this agreement, NDA was granted stock options to purchase 100,000 shares of the Company’s common stock, vesting 25,000 shares on June 24, 2014, and thereafter 25,000 shares annually on June 24, 2015, 2016 and 2017, exercisable for a period of five years from the date of grant at $0.13 per share, which was the fair market value of the Company’s common stock on the grant  date. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $12,960 ($0.13 per share), and is being charged to operations from December 24, 2013 through June 24, 2017. During the year ended December 31, 2013, the Company recorded a charge to operations of $125 with respect to these options.
 
If and when the aforementioned stock options are exercised, the Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.
 
A summary of stock option activity is presented in the tables below.
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
Average
 
 
 
 
 
 
Weighted
 
Remaining
 
 
 
Number
 
Average
 
Contractual
 
 
 
of
 
Exercise
 
Life
 
 
 
Shares
 
Price
 
(in Years)
 
Options outstanding at December 31, 2011
 
 
3,250,000
 
$
0.884
 
 
 
 
Granted
 
 
1,200,000
 
 
0.796
 
 
 
 
Exercised
 
 
(100,000)
 
 
0.333
 
 
 
 
Expired
 
 
(600,000)
 
 
0.889
 
 
 
 
Options outstanding at December 31, 2012
 
 
3,750,000
 
 
0.870
 
 
 
 
Granted
 
 
100,000
 
 
0.130
 
 
 
 
Exercised
 
 
—
 
 
—
 
 
 
 
Expired
 
 
(700,000)
 
 
1.045
 
 
 
 
Options outstanding at December 31, 2013
 
 
3,150,000
 
$
0.818
 
 
2.62
 
 
 
 
 
 
 
 
 
 
 
 
Options exercisable at December 31, 2012
 
 
3,512,500
 
$
0.876
 
 
 
 
Options exercisable at December 31, 2013
 
 
3,000,000
 
$
0.843
 
 
2.52
 
  
Total deferred compensation expense for the outstanding value of unvested stock options was approximately $40,000 at December 31, 2013, which is being recognized subsequent to December 31, 2013 over a weighted-average period of approximately seventeen months.
 
The exercise prices of common stock options outstanding and exercisable are as follows at December 31, 2013: 
 
 
 
 
Options
 
Options
 
Exercise
 
Outstanding
 
Exercisable
 
Prices
 
(Shares)
 
(Shares)
 
 
 
 
 
 
 
 
 
 
$
0.130
 
 
100,000
 
 
—
 
$
0.333
 
 
200,000
 
 
200,000
 
$
0.500
 
 
200,000
 
 
200,000
 
$
0.650
 
 
700,000
 
 
650,000
 
$
0.980
 
 
450,000
 
 
450,000
 
$
1.000
 
 
1,500,000
 
 
1,500,000
 
 
 
 
 
3,150,000
 
 
3,000,000
 
 
Based on a fair market value of $0.13 per share on December 31, 2013, there were no exercisable but unexercised in-the-money common stock options on that date. Accordingly, there was no intrinsic value attributed to exercisable but unexercised common stock warrants at December 31, 2013.
 
 Based on a fair market value of $0.25 per share on December 31, 2012, there were no exercisable but unexercised in-the-money stock options on that date. Accordingly, there was no intrinsic value attributed to exercisable but unexercised stock options at December 31, 2012. 
  
Outstanding options to acquire 150,000 shares of the Company’s common stock had not vested at December 31, 2013.