Stock-Based Compensation

12 Months Ended

Dec. 31, 2015

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

Stock-Based Compensation

7. Stock-Based Compensation

The Company issues common stock and stock options as incentive compensation to directors and as compensation for the services of independent contractors and consultants of the Company.

On June 20, 2007, the Board of Directors of the Company approved the 2007 Stock Compensation Plan (the “2007 Plan”), which provides for the granting of awards, consisting of stock options, stock appreciation rights, performance shares, or restricted shares of common stock, to employees and independent contractors, for up to 2,500,000 shares of the Company’s common stock, under terms and condition, as determined by the Company’s Board of Directors. As of December 31, 2015, unexpired stock options for 550,000 shares were issued and outstanding under the 2007 Plan, and stock options for 1,950,000 were available for issuance under the 2007 Plan.

The fair value of each stock option awarded is estimated on the date of grant and subsequent measurement dates using the Black-Scholes option-pricing model. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts. The expected volatilities are based on historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the grant date. The expected life of the stock options is the average of the vesting term and the full contractual term of the stock options.

For stock options requiring an assessment of value during the year ended December 31, 2015, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	0.68% to 1.66	%
Expected dividend yield	0	%
Expected volatility	243	%
Expected life	3.5 to 5.0 years

For stock options requiring an assessment of value during the year ended December 31, 2014, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	1.15% to 1.75	%
Expected dividend yield	0	%
Expected volatility	173% to 380	%
Expected life	4.0 to 5.0 years

On January 28, 2014, the Company approved a second amendment to the Company’s consulting agreement with Gil Schwartzberg, a significant stockholder of and consultant to the Company, dated September 12, 2007 to extend it for an additional four years to January 28, 2019 and granted to Mr. Schwartzberg stock options to purchase an additional aggregate of 4,000,000 shares of common stock, exercisable for a period of the earlier of five years from the grant date or the termination of the consulting agreement at $0.50 per share, with one-half of the stock options (2,000,000 shares) vesting immediately and one-half of the stock options (2,000,000 shares) vesting on January 28, 2015. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $596,400 ($0.15 per share) on January 28, 2014, of which $298,200 was attributed to the stock options that were fully vested on January 28, 2014 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options was charged to operations ratably from January 28, 2014 through January 28, 2015. During the years ended December 31, 2015 and 2014, the Company recorded charges to operations of $74,901 and $732,699, respectively, with respect to these stock options.

Effective September 16, 2012, in connection with her election to the Company’s Board of Directors, Dr. Kathleen P. Mullinix was granted stock options to purchase 200,000 shares of the Company’s common stock, vesting 25,000 shares on September 16, 2012, and 25,000 shares quarterly thereafter until all of the shares are vested, exercisable for a period of five years from the date of grant at $0.65 per share, which was the fair market value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $118,000 ($0.59 per share), and was charged to operations ratably from September 16, 2012 through June 16, 2014. During the year ended December 31, 2014, the Company recorded a charge to operations of $26,899, with respect to these stock options.

On December 24, 2013, the Company entered into an agreement with NDA Consulting Corp. (“NDA”) for consultation and advice in the field of oncology research and drug development. As part of the agreement, NDA also agreed to cause its president, Dr. Daniel D. Von Hoff, M.D., to become a member of the Company’s Scientific Advisory Committee. In connection with this agreement, NDA was granted stock options to purchase 100,000 shares of the Company’s common stock, vesting 25,000 shares on June 24, 2014, and thereafter 25,000 shares annually on June 24, 2015, 2016 and 2017, exercisable for a period of five years from the date of grant at $0.13 per share, which was the fair market value of the Company’s common stock on the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $12,960 ($0.13 per share), and was charged to operations ratably from December 24, 2013 through June 24, 2017. During the year ended December 31, 2015 and 2014, the Company recorded charges to operations of $9,189 and $8,901 with respect to these stock options.

On June 26, 2014, the Company granted to Francis Johnson, a consultant to the Company and a co-owner of Chem-Master International, Inc., a vendor of the Company, immediately vesting stock options to purchase 500,000 shares of common stock, exercisable for a period of five years from the grant date at $0.25 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $118,650 ($0.24 per share), which was charged to operations on that date. The stock options were granted to Mr. Johnson as compensation for his contributions to the Company’s compound development activities.

On July 15, 2014, Gil Schwartzberg, a significant stockholder of and consultant to the Company, assigned fully-vested stock options to acquire 1,000,000 shares of the Company’s common stock to Dr. Daniel D. Von Hoff, M.D., a member of the Company’s Scientific Advisory Committee. The stock options assigned included options to acquire 500,000 shares that had been previously granted to Mr. Schwartzberg on October 15, 2009, were exercisable at $1.00 per share, and expired on October 15, 2014, and options for 500,000 shares that had been previously granted to Mr. Schwartzberg on October 5, 2011, are exercisable at $1.00 per share, and expire on October 5, 2016. As Mr. Schwartzberg is considered an affiliate of the Company for accounting and securities purposes, the fair value of the stock options assigned by Mr. Schwartzberg to Dr. Von Hoff for the benefit of the Company was recorded as a contribution to capital and a charge to operations. The fair value of the stock options assigned, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $43,500 (average of $0.04 per share). The remaining unexpired stock options to acquire 500,000 shares were transferred back to Mr. Schwartzberg in February 2015.

On October 7, 2014, the Company entered into an Advisory Agreement with Andrew Robell for consultation and advice with respect to identifying and assessing potential licensing and strategic opportunities through September 30, 2016. In connection with the agreement, the Company granted stock options to Mr. Robell to purchase 200,000 shares of the Company’s common stock, vesting 100,000 shares on October 7, 2014 and 100,000 shares on October 7, 2015, exercisable for a period of five years from the date of grant at $0.50 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $20,000 ($0.10 per share), of which $10,000 is attributed to the stock options fully-vested on October 7, 2014 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options was charged to operations ratably from October 7, 2014 through October 7, 2015. During the years ended December 31, 2015 and 2014, the Company recorded charges to operations of $10,064 and $15,526, respectively, with respect to these stock options.

On October 7, 2014, the Company entered into an agreement with ProActive Capital Resources Group LLC (“ProActive”) for strategic advisory, investor relations and public relations services through October 6, 2015. In connection with the agreement, the Company agreed to pay ProActive a monthly fee of $1,500 in cash and agreed to issue to ProActive 250,000 shares of the Company’s common stock, vesting 125,000 shares upon execution of the agreement on October 7, 2014 and 125,000 shares six months thereafter on April 7, 2015. Additionally, the Company issued a stock option in the form of a warrant to ProActive to purchase 500,000 shares of the Company’s common stock, vesting upon execution of the agreement on October 7, 2014, and exercisable for a period of one year from the date of grant at $0.25 per share. The fair value of the warrant, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $33,000 ($0.066 per share). The Company inadvertently neglected to timely record a charge to operations in 2014 of $45,500 with respect to this transaction, as well as to record a portion of the fair value of the remaining unvested 125,000 shares in 2014 (which had a fair value on the grant date of $12,500). The Company recorded a charge to operations for the aggregate fair value of these securities of $76,750 during the year ended December 31, 2015. Management performed an evaluation with respect to this matter and determined that this correction was not qualitatively or quantitatively material to the Company’s financial statements for the years ended December 31, 2014 or 2015, and thus determined that no restatement of such prior periods was necessary or appropriate under the circumstances.

Effective September 14, 2015, the Company entered into a Collaboration Agreement with BioPharmaWorks LLC (“BioPharmaWorks”), pursuant to which the Company engaged BioPharmaWorks to perform certain services for the Company as described at Note 8. In connection with the Collaboration Agreement, the Company agreed to issue to BioPharmaWorks 1,000,000 fully-vested shares of the Company’s common stock, valued at $260,000, based upon the closing price of the Company’s common stock of $0.26 per share, on September 14, 2015. Additionally, the Company issued to BioPharmaWorks two options in the form of warrants, to purchase 1,000,000 shares (500,000 shares per warrant) of the Company’s common stock. The first warrant will vest on September 14, 2016, and is exercisable for a period of five years from the date of grant at $1.00 per share. The second warrant will vest on September 14, 2017, and is exercisable for a period of five years from the date of grant at $2.00 per share. The fair value of the first and second warrants, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $128,400 ($0.2568 per share) and $127,850 ($0.2557 per share), respectively. During the year ended December 31, 2015, the Company recorded a charge to operations of $324,468 with respect to these common shares and warrants.

On November 28, 2015, the Company entered into a two-year advisory agreement with Dr. Fritz Henn, M.D., Ph.D., for consultation and advice on the development of certain of the Company’s products for clinical neurological and neuropsychiatric applications. Dr. Henn is an internationally recognized investigative neuroscientist and psychiatrist. In connection with the advisory agreement, and as sole compensation, Dr. Henn was granted stock options to purchase 200,000 shares of the Company’s common stock, with 100,000 shares vesting on November 28, 2015, and 100,000 shares vesting on November 28, 2016. The stock options are exercisable for a period of five years from the grant date at $0.50 per share. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was initially determined to be $103,360 ($0.5168 per share), of which $51,680 is attributed to the options fully-vested on November 28, 2015 and was therefore was charged to operations on that date. The remaining unvested portion of the fair value of the stock options will be charged to operations ratably from November 28, 2015 through November 28, 2016. During the year ended December 31, 2015, the Company recorded a charge to operations of $54,325 with respect to these stock options.

Total stock-based compensation expense was $549,697 and $946,175 for the years ended December 31, 2015 and 2014, respectively.

A summary of stock option activity during the years ended December 31, 2015 and 2014 is presented in the tables below.

						Weighted
						Average
				Weighted		Remaining
	Number			Average		Contractual
	of			Exercise		Life
	Shares			Price		(in Years)
Stock options outstanding at December 31, 2013		3,150,000		$	0.818
Granted		4,700,000			0.473
Exercised		—			—
Expired		(1,000,000	)		0.803
Stock options outstanding at December 31, 2014		6,850,000			0.582
Granted		1,700,000			1.015
Exercised		—			—
Expired		(600,000	)		0.942
Stock options outstanding at December 31, 2015		7,950,000		$	0.697		2.94
Stock options exercisable at December 31, 2014		4,675,000		$	0.626
Stock options exercisable at December 31, 2015		6,800,000		$	0.586		2.65

Total deferred compensation expense for the outstanding value of unvested stock options was approximately $264,000 at December 31, 2015, which is being recognized subsequent to December 31, 2015 over a weighted-average period of approximately fifteen months.

The exercise prices of stock options outstanding and exercisable are as follows at December 31, 2015:

		Stock Options		Stock Options
Exercise		Outstanding		Exercisable
Prices		(Shares)		(Shares)
$	0.130		100,000		50,000
$	0.250		500,000		500,000
$	0.500		4,400,000		4,300,000
$	0.650		700,000		700,000
$	0.980		250,000		250,000
$	1.000		1,500,000		1,000,000
$	2.000		500,000		—
			7,950,000		6,800,000

The intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2015 was approximately $31,300, based on a fair market value of $0.296 per share on December 31, 2015.

The intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2014 was approximately $2,750, based on a fair market value of $0.24 per share on December 31, 2014.

Outstanding stock options to acquire 1,150,000 shares of the Company’s common stock had not vested at December 31, 2015.

The Company expects to satisfy such common stock obligations through the issuance of authorized but unissued shares of common stock.