NOTE

: STOCK BASED COMPENSATION

Stock Option and Incentive Plan

September 28, 2010,

the Board of Directors approved the adoption of the

2010

Stock Option and Incentive Plan (

“2010

Plan”) to provide for the grant of equity-based awards to employees, officers, non-employee directors and other key persons providing services to the Company. Awards of incentive options

may

be granted under the

2010

Plan until

September 2020.

other awards

may

be granted under the

2010

Plan after the date that is

years from the date of stockholder approval. An aggregate of

5,556

shares were initially reserved for issuance in connection with awards granted under the

2010

Plan and on

May 18, 2016,

an additional

11,111

shares were reserved for issuance under the

2010

Plan. On

May 9, 2017,

the stockholders approved an additional

125,000

shares for issuance under the

2010

Plan. On

April 12, 2018,

the stockholders approved an additional

500,000

shares for issuance under the

2010

Plan. On

May 16, 2019

the stockholders approved an additional

3,600,000

shares.

The following table presents the automatic additions to the

2010

Plan since inception pursuant to the “evergreen” terms of the

2010

Plan:

January 1,	Number of shares
2012		2,502
2013		2,871
2014		4,128
2015		5,463
2016		7,257
2017		12,623
2018		106,076
2019		233,862
Total additional shares		374,782

The Company granted options to purchase

3,565,000

and

611,668

shares of common stock to employees and directors during the year ended

December 31, 2019

and

2018,

respectively. The weighted average grant date fair value of options granted during

2019

and

2018

was

$2.13

and

$2.02,

respectively. There are

311,430

options available for grant under the

2010

Plan as of

December 31, 2019,

and as a result of the evergreen provision contained in the

2010

Plan, an additional

365,239

shares were added to the

2010

Plan on

January 1, 2020.

Compensation costs associated with the Company’s stock options are recognized, based on the grant-date fair values of these options, over the requisite service period, or vesting period. Accordingly, the Company recognized stock-based compensation expense of

$7,102,118

and

$1,053,496

for the years ended

December 31, 2019

and

2018,

respectively, which was included in the following captions in the consolidated statements of operations:

	Year Ended December 31,
	2019		2018
General and administrative	$	4,656,963	$	809,110
Research and development		2,445,156		244,386
Total stock compensation expense	$	7,102,119	$	1,053,496

The fair value of stock options granted for the years ended

December 31, 2019

and

2018,

was calculated using the Black-Scholes option-pricing model applying the following assumptions:

	Year ended December 31,
	2019			2018

Risk free interest rate	2.16%	-	2.20%	2.47%	-	2.71%
Expected term (in years)	5.00	-	5.94	5.24	-	5.57
Dividend yield		0%			0%
Expected volatility	106.88%	-	126.16%	108.81%	-	126.43%

Options issued and outstanding as of

December 31, 2019,

and their activities during the year then ended are as follows:

	Number of Underlying Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Life Remaining in Years		Aggregate Intrinsic Value
Outstanding as of January 1, 2019		783,383	$	12.14			$
Granted		3,565,000		1.51				3,667,300
Forfeited		(40,000)		2.38
Outstanding as of December 31, 2019		4,308,383		3.44		9.04	$	651,000
Exercisable as of December 31, 2019		3,500,186		3.74		9.05	$	569,625
Vested and expected to vest		4,308,383		3.44		9.04	$	651,000

December 31, 2019,

there were

808,197

unvested options outstanding and the related unrecognized total compensation cost associated with these options was

$1,640,798.

This expense is expected to be recognized over a weighted-average period of

0.72

years.

Executive Option Grants Classified as Liabilities (

"2018

Liability Grants")

June 27, 2018,

the Company granted

2,300,000

options to the Chief Executive Officer (CEO) and

700,000

to the Chief Financial Officer (CFO) (the "Liability Options"). Each option was exercisable for an equivalent number of shares of Company's common stock. The Liability Options were granted pursuant to an option award agreement and were granted outside the Company’s

2010

Plan; however, they were subject to the terms and conditions of the

2010

Plan. On

January 13, 2019,

the Liability Options were cancelled.

The Liability Options were exercisable for shares of common stock at an exercise price of

$2.38

per share, which was the fair value on the date of grant. The options had an exercise period of

ten

years from their date of issuance. If at the time the options were exercised the Company could

not

deliver shares of common stock to the optionee including, for example, if there were insufficient shares available under the Plan at the time of exercise, then in lieu of the optionee paying the exercise price and the Company issuing shares of stock, the option would only be exercised on a cash “net basis” so that the Company would pay cash in an amount equal to the excess of the fair value of the common stock over the option exercise price. If there were

not

sufficient shares available under the Plan, the Company would have been obligated to settle these options in cash if they were exercised. Because these options contained provisions that would require the Company to settle the options in cash in an event outside the Company’s control, they were accounted for as liabilities.

Compensation costs associated with the Liability Options were initially recognized, based on the grant-date fair values of these options, over the requisite or vesting period for time-based options or when it was probable the performance criteria were achieved for options that vest based on performance. Compensation cost was remeasured each period based on the market value of our underlying stock until award vesting or settlement.

For the year ended

December 31, 2018,

the Company recognized compensation expense related to these options of

$1,410,025,

which was included in the following captions in the consolidated statements of operations:

	Year Ended December 31, 2018

General and administrative	$	869,515
Research and development		540,510
Total stock compensation expense	$	1,410,025

The Liability Options were subject to vesting requirements. Twenty-

five

percent of the options were vested as of the grant date,

50%

of the options would have vested quarterly over

two

years, and the remaining

25%

would have vested upon achievement of certain milestones related to clinical trial progress. As of

January 13, 2019,

all of the Liability Options that vested upon achievement of clinical trial milestones were vested. On

January 13, 2019,

the Liability Options were cancelled and at the time of cancellation, there were

1,125,000

unvested Liability Options outstanding.

At the time of cancellation, the fair value of Liability Options at

January 13, 2019,

was calculated using the Black-Scholes option-pricing model applying the following assumptions:

	January 13, 2019

Risk free interest rate		2.53	%
Expected term (in years)	4.5	-	5.0
Stock price	$	1.36
Dividend yield		-	%
Expected volatility	121.0	-	123.0%

As a result of the cancellation of these options in the

first

quarter of

2019,

the Company recognized all remaining unrecognized compensation expense related to these options of

$1,741,919,

which was included in the following captions in the consolidated statements of operations:

	Year Ended December 31, 2019

General and administrative	$	1,074,183
Research and development		667,736
Total stock compensation expense	$	1,741,919

Also on

January 13, 2019,

at the same time the Liability Options were cancelled, the Company awarded a new option to the CEO to purchase

2,300,000

shares of Common Stock and a new option to the CFO to purchase

800,000

shares of common stock (the

“2019

Options”). The

2019

Options: (i) have an exercise price equal to the fair market value of Common Stock on the date of board of director approval which was

$1.36

per share, (ii) do

not

contain a net cash exercise provision, (iii) are awarded pursuant to the terms and conditions of the

2010

Plan as amended by the Board of Directors on

January 13, 2019,

to include shares issuable upon exercise of the

2019

Options and other changes to the

2010

Plan so that the

2019

Options do

not

conflict with the

2010

Plan (the “Amended Plan”), (iv) vest and are exercisable in accordance with the vesting schedule related to the

2018

Liability Options; provided, however, that the

2019

Options are

not

exercisable unless and until the Company’s stockholders approve the Amended Plan to increase the authorized number of shares available for grant under the Plan and (v) are subject to and conditioned upon the

2019

Option Agreements with the optionees and the employment agreements with the optionees.

The above actions were unanimously approved by the disinterested members of the Board of Directors. The above actions were intended to eliminate the Company’s potential liability associated with the net cash exercise provision of the Liability Options, and to allow the stockholders of the Company the opportunity to vote on the Amended Plan, which includes shares issuable upon exercise of the

2019

Options. On

May 16, 2019,

the stockholders approved the Amended Plan and thereby approved the issuance of the

2019

Options.

Accounting Treatment

Awards offered under a plan that are subject to shareholder approval are

not

considered granted under GAAP until the approval is obtained, unless such approval is essentially a formality (or perfunctory). For example, if management and board members control sufficient votes to approve the plan, the vote

may

be considered perfunctory. As management and the Company’s Board of Directors did

not

control enough votes to approve the

2019

Options, the

2019

Options were

not

deemed granted under ASC

718.

Cancellation of an award that is

not

accompanied by the concurrent grant are accounted for as a repurchase for

consideration. Accordingly, any previously unrecognized compensation cost is recognized at the cancellation date. On

January 13, 2019,

as noted above, upon cancellation of the Liability Options the Company recognized

$1,741,919

of unrecognized compensation cost related to the

2018

Liability Options. Additionally, the fair value of the stock-based compensation liability of

$3,151,944

was reclassified to additional-paid in capital on the cancellation date. Shareholder approval was obtained on

May

16,

2019,

which was determined to be the grant date for the

2019

Options, and the Company remeasured and recorded the

2019

Options as a new grant under ASC

718

during the quarter ended

June 30, 2019.

The Company recorded

$4,959,277

in the

second

quarter of

2019

for the

2019

Options granted to the executives.