Stock-Based Compensation

9 Months Ended

Sep. 30, 2015

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

Stock-Based Compensation

9. Stock-based Compensation

2014 Stock Option Plan

The Company has 3,856,350 shares of Common Stock authorized and reserved for issuance under our 2014 Stock Option Plan for option awards. 2,642,898 shares of our Common Stock had been initially authorized and on August 11, 2015 our Board authorized an increase of 1,213,452 options awards under the plan. This reserve may be increased by the Board on January 1, 2015 and each subsequent anniversary through January 1, 2024 by up to the number of shares of stock equal to 5% of the number of shares of stock issued and outstanding on the immediately preceding December 31. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in our 2014 Stock Option Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to awards granted under our 2014 Stock Option Plan which expire, are repurchased or are cancelled or forfeited will again become available for issuance under our 2014 Stock Option Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy tax withholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under our 2014 Stock Option Plan.

Awards may be granted under our 2014 Stock Option Plan to our employees, including officers, director or consultants, and our present or future affiliated entities. While we may grant incentive stock options only to employees, we may grant non-statutory stock options, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock based awards to any eligible participant. 

The 2014 Stock Option Plan will be administered by our compensation committee. Subject to the provisions of our 2014 Stock Option Plan, the compensation committee determines, in its discretion, the persons to whom, and the times at which, awards are granted, as well as the size, terms and conditions of each award. All awards are evidenced by a written agreement between us and the holder of the award. The compensation committee has the authority to construe and interpret the terms of our 2014 Stock Option Plan and awards granted under our 2014 Stock Option Plan.

During the nine months ended September 30, 2015 and 2014, the Company had stock-based compensation expenses of $829,667 and $148,334, respectively, related to issuances to the Company’s employees and directors, included in our reported net loss. Stock-based compensation for the nine months ended September 30, 2015 related to the issuance of stock options was $529,667. Stock-based compensation for the nine months ended September 30, 2015 related to the issuance of shares was $300,000.

The Company granted options in excess of the Stock Plan reserve. There are grants of stock options to acquire an aggregate of 323,414 shares of the Company’s common stock, which options are contingent upon stockholder approval of a proposed 3,000,000 increase in the option pool under the Stock Plan.

The Company is obligated to issue the options either through the qualified plan or as non-qualified if the shareholders do not approve the increase in the Stock Plan therefore the Company has recorded the options and related costs upon the issuance date.

A summary of stock option activity for the nine months ended September 30, 2015, is presented below:

	Number		Weighted
	of Shares		Average		Weighted
	Remaining		Exercise		Average		Aggregate
Subject to Exercise	Options		Price		Life (Years)		Value
Outstanding as of January 1, 2014
Granted – 2014		757,977	$	1.00		7.69		-
Forfeited – 2014		-		-		-		-
Exercised – 2014		-		-		-		-
Outstanding as of January 1, 2015		757,977	$	1.00		7.44		-
Granted – 2015		3,421,787		1.58		10.00		-
Forfeited – 2015		-		-		-		-
Exercised – 2015		-		-		-		-
Outstanding as of September 30, 2015		4,179,764	$	1.47		9.40		-

Date Issued	Exercise Price		Number of Shares		Expiration date
September 2014	$	1.00		583,059	September 18, 2021
November 2014	$	1.00		174,918	November 3, 2024
August 2015	$	1.58		3,121,787	August 16, 2025
September 2015	$	1.58		300,000	September 18, 2025
Total options at September 30, 2015				4,179,764

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (i.e., the difference between our closing stock price on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options. There have not been any options exercised during either the nine months ended September 30, 2015 or the year ended December 31, 2014.

There were 3,421,787 options issued during the nine months ended September 30, 2015. Vesting of options differs based on the terms of each option. The Company has valued the options at their date of grant utilizing the Black-Scholes option pricing model. As of the issuance of these consolidated financial statements, there was not an active public market for the Company’s shares. Accordingly, the fair value of the underlying options was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from our authorized shares instead of settling such obligations with cash payments.

There were 189,876 shares issued during the nine months ended September 30, 2015 per our director’s compensation agreement.

The Company utilized the Black-Scholes option pricing model. The assumptions used for the nine months ended September 30, 2015 are as follows:

	September 30, 2015
Risk free interest rate		0.97%-1.07%
Expected life (in years)		6
Expected Volatility		113.08%-113.96%
Expected dividend yield		0%

A summary of the changes in the Company’s non-vested options during the nine months ended September 30, 2015, is as follows:

	Number of Non-vested Options		Weighted Average Fair Value at Grant Date		Intrinsic Value
Non-vested at January 1, 2014		-		-		-
Granted in 2014		757,977	$	0.73
Vested in 2014		256,508	$	0.73		-
Non-vested at January 1, 2015		501,469	$	0.73		-
Granted in 2015		3,421,787	$	1.33		-
Vested in nine months ended September 30, 2015		192,429	$	0.73		-
Non-vested at September 30, 2015		3,730,827	$	1.29		-
Exercisable at September 30, 2015		448,937	$	0.73		-
Outstanding at September 30, 2015		4,179,764	$	1.22		-

As of September 30, 2015, total unrecognized compensation cost related to unvested stock options was $4,333,457. The cost is expected to be recognized over a weighted average period of 1.91 years.

2015		2016		2017		2018
$	724,254	$	2,299,586	$	988,703	$	320,914