Stock Options

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Note 7. Stock Options

Note 7. 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 December 31, 2018, there were 19,440,765 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. The Company adopted ASU 2017-09 (Compensation – Stock Compensation (Topic 718)) effective January 1, 2017 with no effect on retained deficit or other components of equity as of the beginning of the period.

Stock Option Activity

The following table summarizes stock option activity for the period ended December 31, 2018 :

	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
Forfeited		(40,000	)		4.20
Exercises		(187,500	)		1.12
Outstanding at December 31, 2018		317,500			3.41		7.68 years		70,000
Exercisable at December 31, 2018		307,500			3.49		7.76 years		60,000
Available for grant at December 31, 2018		19,440,765

The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. There were 310,000 stock options granted during the year ended December 31, 2017 with a weighted-average grant date fair value of $3.38. During the year ended December 31, 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. Non-employee options are remeasured each reporting period and adjusted to reflect the remeasurement. Final remeasurement was done during the year ended December 31, 2018 when the options fully vested. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model. The volatility assumption is based on the Company's historical experience. The risk-free interest rate is based on a U.S. treasury note with maturity similar to the option award's expected life. The expected life represents the average period of time that options granted are expected to be outstanding. The assumptions for volatility, expected life, dividend yield and risk-free interest rate for options granted are presented in the table below:

	Years Ended December 31,
	2018			2017
Risk-free interest rate		2.97	%		1.93% - 2.39	%
Expected life in years		9.0			5.5 – 10.0
Weighted Avg. Expected Volatility		108	%		98% - 106	%
Expected dividend yield		0			0

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 years December 31, 2018 and 2017, the Company recognized $170,517 and $904,004, respectively, in share-based compensation. As of December 31, 2018, the Company had $416 unrecognized compensation cost related to unvested stock options. Stock-based compensation has been included in the consolidated statement of operations as follows:

	Years Ended December 31,
	2018		2017
Research and development	$	27,967	$	100,630
General and administrative		142,550		803,374
Total	$	170,517	$	904,004

The following table summarizes information about stock options outstanding and exercisable at December 31, 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
	1.05		55,000		5.25		1.05		45,000		5.25		1.05
	1.25		7,500		6.46		1.25		7,500		6.46		1.25
	1.34		7,500		6.50		1.34		7,500		6.50		1.34
	1.70		7,500		6.79		1.70		7,500		6.79		1.70
	2.28		7,500		7.55		2.28		7,500		7.55		2.28
	4.20		232,500		8.36		4.20		232,500		8.36		4.20
	Total		317,500		7.68	$	3.41		307,500		7.68	$	3.49