8. Stockholders' Equity

3 Months Ended

Mar. 31, 2017

Stockholders Equity

8. Stockholders' Equity

Note 8. Stockholders' Equity 

Reverse Stock Split

On October 13, 2016, the Company effectuated a reverse stock split of its outstanding shares of common stock at a ratio of 1 to 10 (the Reverse Stock Split). Upon the effectiveness of the Reverse Stock Split, which occurred on October 13, 2016, the Company's issued and outstanding shares of common stock was decreased from 94,961,549 to 9,499,812 shares, all with a par value of $0.01. Accordingly, all share and per share information has been restated in the Report to retroactively show the effect of the Reverse Stock Split.

Warrants

As of March 31, 2017, the Company has approximately 32,992 outstanding common stock warrants in connection with the acquisition of Somaxon Pharmaceuticals (Somaxon) in March 2013.

Stock Option Plans

In June 2015, the Company's shareholders approved the 2015 Omnibus Incentive Plan (the 2015 Plan). The maximum number of shares that can be offered under this plan is 700,000. Incentives may be granted under the 2015 Plan to eligible participants in the form of (a) incentive stock options, (b) non-qualified stock options, (c) restricted shares, (d) restricted stock units, (e) share appreciation rights and (f) other share-based awards. Incentive grants under the 2015 Plan generally vest based on four years of continuous service and have 10-year contractual terms.

Stock-Based Compensation

Stock-based compensation expense is recognized, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period, which is the vesting period.

The Company uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of share-based payment awards on the date of grant using an option pricing model is affected by the Company's stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company's expected stock price volatility over the term of the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends.

The weighted average fair value of stock options granted during the periods and the assumptions used to estimate those values using the Black-Scholes option pricing mode were as follows:

		Three Months Ended
		March 31,
		2017		2016
Weighted average expected
stock price volatility		85.0%		71.0%
Estimated dividend yield		-		-
Risk-free interest rate		2.1%		1.4%
Expected life of option (in years)		6.2		6.2
Weighted average grant date
fair value per option	$	1.86	$	13.70

The expected stock price volatility for the stock options is based on historical volatility of the Company's stock. The Company has not paid and does not anticipate paying cash dividends; therefore, the expected dividend rate is assumed to be 0%. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The expected life of the stock options granted was estimated based on the historical exercise patterns over the option lives.  

The Company measures the grant date fair value of restricted stock units using the Company's closing common stock price on the trading date immediately preceding the grant date.

Stock-based compensation expense was $745,000 and $1.5 million for the three months ended March 31, 2017 and 2016, respectively. Stock-based compensation expense for the periods presented is included within the selling, general and administrative expense in the unaudited condensed consolidated statements of operations.

Stock Options

As of March 31, 2017, approximately 673,000 options are outstanding that have been issued to employees and directors under the Company's Golf Trust of America, Inc. 2007 Stock Option Plan, the Amended and Restated Pernix Therapeutics Holdings, Inc. 2009 Stock Incentive Plan and the 2015 Plan. As of March 31, 2017, there was approximately $5.2 million of total unrecognized compensation cost related to non-vested stock options issued to employees and directors of the Company, which is expected to be recognized ratably over a weighted-average period of 2.20 years.

During the year ended December 31, 2015, the Company's Board of Directors awarded a total of 48,500 options (Performance Options) to certain of the Company's former executive officers. Due to the corporate restructuring that was announced in July 2016 and the associated departures of Company's former executive officers, all outstanding Performance Options have been canceled and none of these Performance Options have vested.

The Company utilized a Monte Carlo simulation to determine the grant date fair value of the Performance Options. Compensation expense is recognized over the performance period of each tranche in accordance with ASC 718, Compensation - Stock Compensation. For the three months ended March 31, 2017 and 2016, the Company recorded $0 and $23,000, respectively, of share-based compensation expense related to these options.

The following table shows the option activity, described above, during the three months ended March 31, 2017 (share and intrinsic values in thousands):

				Weighted Average
			Average	Remaining		Aggregate
			Exercise	Contractual Life		Intrinsic
	Shares		Price	(years)		Value
Options Outstanding at December 31, 2016	650	$	25.85
Granted	29		2.54
Exercised	-		-		$	-
Cancelled	(6)		47.03
Expired	-		-
Options outstanding at March 31, 2017	673	$	24.63	8.9	$	186
Options vested and expected to
vest as of March 31, 2017	518	$	29.24	8.7	$	114
Options vested and exercisable as of March 31, 2017	118	$	58.50	7.4	$	-

The total intrinsic value of options exercised during the three months ended March 31, 2017 and 2016 was $0.

Options issued subsequent to January 2014 have a graded vesting schedule over either three or four years. The Company's stock option grants expire ten years from the date of grant.

Restricted Stock

The following table shows the Company's non-vested restricted stock activity during the three months ended March 31, 2017 (share and intrinsic values in thousands):

			Weighted Average		Aggregate
			Grant Date Fair		Intrinsic
	Shares		Value		Value
Non-vested restricted stock outstanding at December 31, 2016	197	$	3.36
Granted	5		2.19
Vested	-		-	$	-
Forfeited	-		-
Non-vested restricted stock outstanding at March 31, 2017	202	$	3.33

As of March 31, 2017, there was $331,000 of total unrecognized compensation cost related to non-vested restricted stock issued to employees and directors of the Company.