Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

NOTE 8—STOCK-BASED COMPENSATION

In 2008, the Company adopted the Houston American Energy Corp. 2008 Equity Incentive Plan (the “2008 Plan”). The terms of the 2008 Plan, as amended in 2012 and 2013, allow for the issuance of up to 6,000,000 shares of the Company’s common stock pursuant to the grant of stock options and restricted stock.

In 2017, the Company adopted the Houston American Energy Corp. 2017 Equity Incentive Plan (the “2017 Plan” and, together with the 2008 Plan, the “Plans”). The terms of the 2017 Plan allow for the issuance of up to 5,000,000 shares of the Company’s common stock pursuant to the grant of stock options and restricted stock. Persons eligible to participate in the Plans are key employees, consultants and directors of the Company.

Stock Option Activity

In March 2017, options to purchase an aggregate of 1,200,000 shares were granted to an executive officer, a non-executive officer and an advisor to the Company. All of the options had a ten-year life and were exercisable at $0.30 per share, the fair market value on date of grant. The executive officer’s option grant vested 1/3 on each of the first three anniversaries of the grant date; subject to vesting in full on December 31, 2017 if the Company’s common stock continued to be listed on the NYSE MKT (or another national securities exchange) on that date. The non-executive officer’s option grant vested 25% on June 12, 2017 and 25% on each of the first three anniversaries of the grant date. The advisor option grant vested on the grant date. The non-executive officer options were forfeited unvested on termination of service to the Company during the six months ended June 30, 2017. The options were valued on the date of grant at $234,947 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 2.19%; (2) expected life in years of 5.50; (3) expected stock volatility of 109.16%; and (4) expected dividend yield of 0%. The Company determined the options qualified as ‘plain vanilla’ under the provisions of SAB 107 and the simplified method was used to estimate the expected option life.

In September 2017, options to purchase an aggregate of 200,000 shares were granted to the Company’s independent directors. All of the options had a ten-year life and were exercisable at $0.485 per share, the fair market value on date of grant. The options vested 20% on the date of grant and 80% nine months from the date of grant. The options were valued on the date of grant at $71,064 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 1.76%; (2) expected life in years of 5.67; (3) expected stock volatility of 102.38%; and (4) expected dividend yield of 0%. The Company determined the options qualified as ‘plain vanilla’ under the provisions of SAB 107 and the simplified method was used to estimate the expected option life.

In February 2018, options to purchase an aggregate of 1,000,000 shares were granted to an executive officer. The options had a ten-year life, vested 1/3 on each of the first three anniversaries of the grant date and were exercisable at $0.2922 per share, the fair market value on the date of grant. The executive officer was terminated in June 2018 and the options were forfeited unvested on termination of employment. The options were valued on the date of grant at $166,940 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 2.68%; (2) expected life in years of 5.79; (3) expected stock volatility of 105.4%; and (4) expected dividend yield of 0%. The Company determined the options qualified as ‘plain vanilla’ under the provisions of SAB 107 and the simplified method was used to estimate the expected option life.

In March 2018, options to purchase an aggregate of 500,000 shares were granted to a non-officer employee. The options had a ten-year life, vested 1/3 on each of the first three anniversaries of the grant date and were exercisable at $0.30 per share, the fair market value on the date of grant. The options were valued on the date of grant at $89,808 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 2.72%; (2) expected life in years of 5.81; (3) expected stock volatility of 105.0%; and (4) expected dividend yield of 0%. The Company determined the options qualified as ‘plain vanilla’ under the provisions of SAB 107 and the simplified method was used to estimate the expected option life.

In April 2018, options to purchase 8,333 shares were granted to a newly appointed non-employee director. The options had a ten-year life, vested 20% on the date of grant and 80% nine months from the date of grant and an exercise price of $0.267 per share, the fair market value on the date of grant. The options were valued on the date of grant at $1,770 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 2.69%; (2) expected life in years of 5.8; (3) expected stock volatility of 105.0%; and (4) expected dividend yield of 0%. The Company determined the options qualified as ‘plain vanilla’ under the provisions of SAB 107 and the simplified method was used to estimate the expected option life.

In June 2018, options to purchase an aggregate of 150,000 shares were granted to three non-employee directors. The options had a ten-year life, vested 20% on the date of grant and 80% nine months from the date of grant and exercise prices of $0.2425 per share, the fair market value on the date of grant. The options were valued on the date of grant at $27,422 using the Black-Scholes option-pricing model with the following parameters: (1) risk-free interest rate of 2.79%; (2) expected life in years of 5.88; (3) expected stock volatility of 103.9%; and (4) expected dividend yield of 0%. The Company determined the options qualified as ‘plain vanilla’ under the provisions of SAB 107 and the simplified method was used to estimate the expected option life.

In June 2018, stock options to purchase 250,000 shares of common stock were exercised, in a cashless exercise, resulting in the issuance of 114,379 shares of common stock.

Option activity during 2018 and 2017 was as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016		5,232,165		$	2.11
Granted		1,400,000		$	0.33
Exercised		—		$	—
Forfeited		(620,000	)	$	0.47
Outstanding at December 31, 2017		6,012,165		$	1.86
Granted		1,658,333		$	0.29
Exercised		(250,000	)	$	0.22
Forfeited		(2,441,666	)	$	3.79
Outstanding at December 31, 2018		4,978,832		$	0.77		6.24	$	—
Exercisable at December 31, 2018		4,406,473		$	0.83		5.85	$	—

During 2018 and 2017, the Company recognized $94,846 and $304,189, respectively, of stock-based compensation expense attributable to outstanding stock option grants, including current period grants and unamortized expense associated with prior period grants.

As of December 31, 2018, non-vested options totaled 572,359 and total unrecognized stock-based compensation expense related to non-vested stock options was $85,080. The unrecognized expense is expected to be recognized over a weighted average period of 1.95 years. The weighted average remaining contractual term of the outstanding options and exercisable options at December 31, 2018 is 6.24 years and 5.85 years, respectively.

As of December 31, 2018, there were 6,021,168 shares of common stock available for issuance pursuant to future stock or option grants under the Plans.

Stock-Based Compensation Expense

The following table reflects stock-based compensation recorded by the Company for 2018 and 2017:

	2018			2017
Stock-based compensation expense from stock options and warrants included in general and administrative expense	$	96,616		$	306,999
Earnings per share effect of stock-based compensation expense	$	(0.00	)	$	(0.00	)