Accounting for Shared-Based Payments

6 Months Ended

Jun. 30, 2011

Accounting for Shared-Based Payments

Accounting for Shared-Based Payments

4. Accounting for Shared-Based Payments

Stock Options

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. ASC Topic 718 did not change the way Synergy accounts for non-employee stock-based compensation. Synergy continues to account for shares of common stock, stock options and warrants issued to non-employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received. The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity-Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

ASC Topic 718 requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows from financing activities and cash outflows from operating activities. Due to Synergy’s accumulated deficit position, no excess tax benefits have been recognized. Synergy accounts for common stock, stock options, and warrants granted to employees and non-employees based on the fair market value of the instrument, using the Black-Scholes option pricing model based on assumptions for expected stock price volatility, term of the option, risk-free interest rate and expected dividend yield, at the grant date.

Synergy adopted the 2008 Equity Compensation Incentive Plan (the “Plan”) during the quarter ended September 30, 2008. Stock options granted under the Plan typically vest after three years of continuous service from the grant date and have a contractual term of ten years. Synergy did not issue stock options prior to the quarter ended September 30, 2008. Stock-based compensation expense related to Synergy options and restricted stock units have been recognized in operating results as follow:

	Three Months Ended June 30,				Six Months Ended June 30				November 15, 2005 (inception) to
	2011		2010		2011		2010		June 30, 2011
Employees—included in research and development	$	37,157	$	49,804	$	73,906	$	99,263	$	593,496
Employees—included in general and administrative	45,115		58,994		89,733		117,948		771,219
Non-employees—included in research and development	8,456		8,455		16,818		16,817		111,464
Non-employees—included in general and administrative	58,370		71,778		116,101		143,377		966,982
Total stock-based compensation expense	$	149,098	$	189,031	$	296,558	$	377,405	$	2,443,161

The unrecognized compensation cost related to non-vested employee stock options outstanding at June 30, 2011, net of expected forfeitures, was $10,727 to be recognized over a weighted-average remaining vesting period of approximately three months. This unrecognized compensation cost does not include amounts related to stock options which vest upon change of control.

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the following periods indicated.

	Six Months Ended June 30, 2011	Six Months Ended June 30, 2010
Risk-free interest rate	(*)	2.31- 2.71%
Dividend yield	(*)	—
Expected volatility	(*)	90%
Expected term (in years)	(*)	6.0 yrs

(*) No stock options granted during this period.

On March 1, 2010, a majority of Synergy’s shareholders acting by written consent approved an amendment to the Plan increasing the number of shares reserved under the Plan to 15,000,000 shares. A summary of stock option activity and of changes in stock options outstanding under the Plan is presented below:

	Number of Options		Exercise Price Per Share	Weighted Average Exercise Price Per Share		Intrinsic Value		Weighted Average Remaining Contractual Term
Balance outstanding, December 31, 2010	8,604,016		$0.25 - 0.95	$	0.51	$	25,763,002	8.4 years
Granted	—		—	—
Exercised	—		—	—
Forfeited	(289,939	)	$0.25-0.70	$	0.52
Balance outstanding, June 30, 2011	8,314,077		$0.25-0.95	$	0.51	$	29,887,896	7.91 years
Exercisable at June 30, 2011	2,683,343		$0.25-0.95	$	0.30	$	10,208,371	7.04 years