In February 2016, the Company modified the vesting schedule on the 1.9 million share grant made to its Chief Executive Officer and Executive Chair, Strategic Development in December 2013, and the 3.9 million share inducement grant made to its Executive Chair, Strategic Development in February 2014. The modification extended the vesting on the first tranche of all the grants by twelve months. The impact of the modification was $0.4 million, which will be amortized over the remaining life of the award.

As of September 30, 2016, the Company had unrecognized stock-based compensation expense related to unvested option of $16,000 with a weighted average vesting period of 0.22 years.

As of September 30, 2016, the Company had unrecognized stock-based compensation expense related to restricted stock and restricted stock unit awards of approximately $5.6 million and $1.2 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 2.2 years and 1.4 years, respectively.

Eligible employees can purchase the Company’s Common Stock at the end of a predetermined offering period at 85% of the lower of the fair market value at the beginning or end of the offering period. The ESPP is compensatory and results in stock-based compensation expense.

 

On July 15, 2015, grants of 500,000 warrants for shares of common stock held by the Company in each of Mustang, Checkpoint, Avenue, Coronado SO, Helocyte, JMC and Escala, were made to each of Dr. Rosenwald and Mr. Weiss for their services to the Company under the LTIP. The exercise price of each warrant, which approximates its fair value, was determined by the Company utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8%, weighted average cost of capital of 30%, and net of debt utilized. The Company recorded a charge of approximately $2.2 million related to these grants.

 

On January 1, 2016, the Compensation Committee granted 510,434 shares each to Dr. Rosenwald and Mr. Weiss. These equity grants, made in accordance with the LTIP, represent one percent (1%) of total outstanding shares of the Company and were granted in recognition of their performance in 2015. The shares are subject to repurchase by the Company until both of the following conditions are met: (i) the Company’s market capitalization increases by a minimum of $100,000,000, and (ii) the employee is either in the service of the Company as an employee or as a Board member (or both) on the tenth anniversary of the LTIP, or the eligible employee has had an involuntary separation from service (as defined in the LTIP). The Company’s repurchase option on such shares will also lapse upon the occurrence of a corporate transaction (as defined in the LTIP) if the eligible employee is in service on the date of the corporate transaction. Since these awards contain a  market condition  as defined in ASC 718, Compensation - Stock Compensation, the Company valued the award using the Monte Carlo simulation model. The model generated the fair value of the award at the grant date of $2.4 million for both grants, which is amortized over the vesting period, ten years from the date of the LTIP, subject to the above performance condition being probable of being met. For three and nine month ended September 30, 2016, the Company recorded expense of $75,000 and $0.2 million, respectively. No expense was recorded in 2015.

Checkpoint has a long-term incentive plan. In March 2015, Checkpoint issued a restricted stock grant to Dr. Marasco for services in connection with its Scientific Advisory Board. Dr. Marasco was issued a grant for 1.5 million shares of Checkpoint common stock, of which 25% vested on the first anniversary of the grant date and monthly thereafter for 48 months. Checkpoint valued the restricted stock utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8% and a weighted average cost of capital of 30%, resulting in a value of $0.065 per share on grant date. At December 31, 2015, Checkpoint re-measured this non-employee restricted stock utilizing a market approach, based upon a third party financing. Such valuation resulted in a value of $4.39 per share utilizing a volatility of 83%, a risk free rate of return of 1.5% and a term of five years. At May 26, 2016, Checkpoint re-measured this non-employee restricted stock utilizing a market approach, based upon a third party financing. Such valuation resulted in a value of $4.42 per share utilizing a volatility of 83%, a risk free rate of return of 1.35% and a term of five years. For the three and nine months ended September 30, 2016, the Company recorded expense of approximately $0.4 million and $1.6 million, respectively, in research and development expenses in the Company’s Condensed Consolidated Statements of Operations. For both the three and nine months ended September 30, 2015, the Company recorded expense of approximately $2.1 million in connection with this grant.

  

Certain employees and directors of Checkpoint have been awarded restricted stock under Checkpoint’s 2015 Incentive Plan. For the three and nine months ended September 30, 2016, the Company recorded stock-based compensation expense of approximately $0.3 million and $1.0 million, respectively, related to stock grants, which is included in general and administrative expenses on the Condensed Consolidated Statements of Operations. The Company recorded approximately $20,000 related to stock-based compensation expense for the three and nine months ended September 30, 2016, which is included in research and development expenses on the Condensed Consolidated Statements of Operations. There were no related expenses recognized during the same periods in 2015.

Avenue has a long term incentive program. During 2015, Avenue granted 1.0 million shares to its acting Chief Executive Officer, Dr. Lu, who is also Chief Financial Officer of Fortress, for services to be provided. The stock price was determined utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8%, weighted average cost of capital of 30%, and net of debt utilized, resulting in a value of $0.146 per share. The grant issued to Dr. Lu vests 50% in four equal annual tranches of 12.5%, with the remaining 50% vesting upon the achievement of certain performance goals. In connection with these grants, for the three and nine months ended September 30, 2016, the Company recorded approximately $2,500 and $11,500, respectively, as general and administrative expenses and $2,500 and $11,500, respectively, as research and development expenses on the Condensed Consolidated Statements of Operations. In connection with these grants for the three and nine months ended September 30, 2015, approximately $13,000 and $16,000, respectively, was recorded in expense on the Condensed Consolidated Statements of Operations.

 

For the three and nine months ended September 30, 2015, stock-based compensation expenses associated with the amortization of Avenue’s restricted stock award for non-employees were $0 and $22,000, respectively.

 

 

During the nine months ended September 30, 2016, JMC granted 310,000 of options to its employees, vesting equally over three to four years. The fair value of stock options granted was determined on the grant date using assumptions for risk free interest rate, the expected term, expected volatility, and expected dividend yield. The stock price was determined utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.2%, weighted average cost of capital of 25.1%, and net of debt utilized, resulting in a value of $0.53 per share. JMC does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%. The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options. JMC obtained the risk-free interest rate from publicly available data published by the Federal Reserve. The volatility rate was computed based on a comparison of average volatility rates of similar companies. The fair value of options granted in 2016 was estimated using the following assumptions:

During the three and nine months ended September 30, 2016, stock-based compensation associated with the amortization of stock option expense was approximately $0.1 million and $0.4 million, respectively. JMC also recorded approximately $29,000 and $95,000 related to the restricted stock during the three and nine months ended September 30, 2016, respectively. Expense for both the three and nine months ended September 30, 2015 of approximately $279,000 was recorded in general and administrative expense on the Condensed Consolidated Statements of Operations.

On March 30, 2016, Helocyte granted 150,000 shares of restricted stock to a consultant. The shares will vest in four equal annual installments beginning on March 30, 2017. On May 6, 2016, Helocyte granted 508,333 shares of restricted stock to a different consultant. The shares will vest in twelve equal quarterly installments of which 127,084 shares were immediately vested in May 2016. The stock price was determined utilizing a market approach, based upon a third party financing, which resulted in a value of $0.46 per share as of May 31, 2016, utilizing a volatility of 68% and a risk free rate of return of 1.3%. For the three and nine months ended September 30, 2016, Helocyte re-measured the non-employee grants and recorded expense of approximately $50,000 and $118,000, respectively, in research and development expenses on the Condensed Consolidated Statements of Operations.

 

On March 30, 2016, Helocyte granted 1.0 million shares to its Chief Executive Officer for services to be provided. The shares vest in twelve equal quarterly installments beginning on June 30, 2016. The fair market value of the stock is $0.097 per share based upon management’s estimate of fair value. In connection with this grant, for the three and nine months ended September 30, 2016, the Company recorded approximately $17,000 and $42,000, respectively, as general and administrative expenses on the Condensed Consolidated Statements of Operations.

On February 23, 2016, Checkpoint closed on proceeds of $0.6 million, in a private placement of shares and warrants to Opus Point Healthcare Fund GP, LLC, a fund managed by OPPM, a related party. The financing involved the sale of units, each consisting of 10,000 shares of common stock and a warrant exercisable for 3,500 shares of common stock at an exercise price of $7.00 per share, for a total price of $45,000 per unit. The warrants have a five-year term and are only exercisable for cash. Checkpoint issued 126,640 unregistered shares of common stock and 44,324 warrants in connection with this transaction. Due to the absence of a placement agent in this transaction, the net proceeds to, and warrants issued by, Checkpoint were consistent with terms of the December 2015 third-party financing, which included the payment of fees and issuance of warrants to a placement agent.

As of September 30, 2016, the Company determined that the warrants still did not meet the definition of a derivative and continued to qualify for equity recognition.  

 

On September 30, 2016, Mustang closed on gross proceeds of $12.4 million, before expenses, in a private placement of shares and warrants for which National Securities Corporation, a subsidiary of National, was the placement agent and received a fee of $1.2 million (recorded as contra-equity) or 10% of the gross proceeds. The financing involved the sale of units, each consisting of 10,000 shares of common stock and a warrant exercisable for 2,500 shares of common stock at an exercise price of $8.50 per share, for a total price of $65,000 per unit. The warrants have a five-year term and are only exercisable for cash. Mustang issued 1.9 million unregistered shares of common stock and 478,708 warrants in connection with this transaction. In addition, the placement agent received 191,483 warrants or 10% of the shares issued.

As of September 30, 2016, the Company determined that the warrants still did not meet the definition of a derivative and continued to qualify for equity recognition.  

On August 17, 2016, the Company entered into an Amended and Restated At Market Issuance Sales Agreement, or Sales Agreement, with MLV & Co, or MLV, and FBR Capital Markets & Co., or FBR. On August 18, 2016, the Company filed a Registration Statement on Form S-3 which, upon effectiveness, will permit the Company to issue and sell shares of its common stock having an aggregate offering price of up to $53.0 million from time to time through MLV and FBR, as sales agents under the Sales Agreement. The Sales Agreement terminates on August 17, 2019.