6. Common stock

(a) Stock option plan

On January 27, 2014, the stockholders of Aquinox USA approved a 2014 Equity Incentive Plan (“2014 Plan”). The 2014 Plan became effective on the date of the prospectus for the IPO, March 6, 2014. The 2014 Plan is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”). After the 2014 Plan became effective, no further grants will be made under the 2006 Plan. The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity awards to employees, directors, and consultants.

The maximum number of shares of common stock that may be issued the under the 2014 Plan is 1,423,416, which number includes a number of shares of common stock equal to (i) 756,279 new shares, plus (ii) the number of shares reserved for issuance under the 2006 Plan at the time the 2014 Plan becomes effective, plus (iii) any shares subject to stock options or other stock awards granted under the 2006 Plan that would have otherwise returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting. Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4% of the total number of shares of capital outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

(b) Stock-based compensation

On March 6, 2014, four of the non-employee directors were granted options to purchase a total of 33,332 shares of common stock; the exercise price per share for these grants was $11.00, which was the offering price of the common stock in the IPO.

On May 8, 2014, the Company granted options to employees to purchase a total of 175,500 shares of common stock; the exercise price per share for these grants was $10.10, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the grant.

The fair value of stock options granted is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2014		2013		2014		2013
Expected volatility		108%		93%		108%		93%
Expected dividends		0%		0%		0%		0%
Expected terms (years)		6.00		6.25		6.00		6.25
Risk free rate		1.70%		1.88%		1.67%		1.88%
Weighted average grant-date fair value of stock options		$8.30		$2.92		$8.42		$2.92

The Company amortizes the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. Stock-based compensation expense charged to income for the plans was $214,822 and $352,476 for the three and six months ended June 30, 2014, respectively and $73,483 and $128,157 for the three and six months ended June 30, 2013, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $3,043,734 as of June 30, 2014, which is expected to be recognized over a weighted-average period of 2.69 years.

(c) Common stock

The total number of shares of common stock Aquinox USA is authorized to issue is 50,000,000 shares with a par value of $0.000001 per share. On June 30, 2014, the Company issued 19,762 shares of common stock to Biolipox AB as payment for achievement of a milestone upon the first submission to the FDA of an Investigational New Drug (IND) for AQX-1125. The fair value of the shares issued to Biolipox was $186,356, which was charged to research and development expense. Fair value was determined based on the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the share issuance which was June 30, 2014.

As of June 30, 2014, total number of shares of common stock issued and outstanding was 10,695,022.