Stock Options

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Note 6. Stock Options

On June 20, 2013, the Company’s Board adopted the 2013 Long-Term Incentive Plan and on November 15, 2013, a stockholder owning a majority of the Company’s issued and outstanding stock approved adoption to the 2013 Plan. Pursuant to the terms of the 2013 Plan, an aggregate of 20,000,000 shares of the Company’s common stock are reserved for issuance to the Company’s officers, directors, employees and consultants in order to attract and hire key technical personnel and management. Options granted to employees under the 2013 Plan, including directors and officers who are employees, may be incentive stock options or non-qualified stock options; options granted to others under the 2013 Plan are limited to non-qualified stock options. As of September 30, 2018, there were 19,400,765 shares available for grant.

The 2013 Plan is administered by the Board or a committee designated by the Board. Subject to the provisions of the 2013 Plan, the Board has the authority to determine the officers, employees and consultants to whom options will be granted, the number of shares covered by each option, vesting rights and the terms and conditions of each option that is granted to them; however, no person may be granted in any of the Company’s fiscal year, options to purchase more than 2,000,000 shares under the 2013 Plan, and the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year cannot exceed $100,000. Options granted pursuant to the 2013 Plan are exercisable no later than ten years after the date of grant.

The exercise price per share of common stock for options granted under the 2013 Plan will be the fair market value of the Company’s common stock on the date of grant, using the closing price of the Company’s common stock on the last trading day prior to the date of grant, except for incentive stock options granted to a holder of ten percent or more of the Company’s common stock, for whom the exercise price per share will not be less than 110% of the fair market value. No option can be granted under the 2013 Plan after June 20, 2023.

Stock Option Activity

The following table summarizes stock option activity for the nine month period ended September 30, 2018 and year ended December 31, 2017:

	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value ($)
Outstanding at December 31, 2016		385,000			1.42
Grants		310,000			4.20
Exercises		(150,000	)		1.12
Outstanding at December 31, 2017		545,000			3.09
Exercises		(187,500	)		2.86
Outstanding at September 30, 2018		357,500			3.21	7.82 years		42,825
Exercisable at September 30, 2018		347,500			3.27	7.89 years		37,325

The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. There were no stock options granted during the nine months ended September 30, 2018. There were 310,000 stock options granted during the nine months ended September 30, 2017 with a weighted-average grant date fair value of $3.38. During the nine months ended September 30, 2018, there were 187,500 options exercised on a cashless basis resulting in the issuance of 125,307 shares of common stock, with an aggregate intrinsic value of $1,126,675. During the nine months ended September 30, 2017, there were 150,000 options exercised on a cashless basis resulting in the issuance of 102,582 shares of common stock, with an aggregate intrinsic value of $397,100.

The share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time is expensed ratably over the respective vesting periods. During the three months ended September 30, 2018 and 2017, the Company recognized $371 and $127,478, respectively, in share-based compensation related to stock options. During the nine months ended September 30, 2018 and 2017, the Company recognized $170,517 and $748,350, respectively, in share-based compensation related to stock options.

As of September 30, 2018, the Company had approximately $877 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 0.50 years. Stock-based compensation has been included in the Consolidated Statement of Operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Research and development	$	-	$	10,725	$	27,966	$	75,515
General and administrative		371		116,753		142,551		672,835
Total	$	371	$	127,478	$	170,517	$	748,350

The following table summarizes information about stock options outstanding and exercisable at September 30, 2018:

		Stock Options Outstanding						Stock Options Exercisable
Range of Exercise Prices		Number of Shares Subject to Outstanding Options		Weighted Average Contractual Life (years)		Weighted Average Exercise Price		Number of Shares Subject To Options Exercise		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	0.80		10,000		5.87		0.80		10,000		5.87		0.80
	1.05		55,000		5.50		1.05		45,000		5.50		1.05
	1.25		7,500		6.71		1.25		7,500		6.71		1.25
	1.34		7,500		6.75		1.34		7,500		6.75		1.34
	1.65		10,000		7.09		1.65		10,000		7.09		1.65
	1.70		7,500		7.04		1.70		7,500		7.04		1.70
	1.91		20,000		7.46		1.91		20,000		7.46		1.91
	2.28		7,500		7.81		2.28		7,500		7.81		2.28
	4.20		232,500		8.62		4.20		232,500		8.62		4.20
Total			357,500		7.82	$	3.21		347,500		7.89	$	3.27