Stock-Based Compensation

9 Months Ended

Sep. 30, 2015

Share-based Compensation [Abstract]

Stock-Based Compensation

8. Stock-Based Compensation

On January 29, 2015, the Company adopted the 2015 Stock Incentive Plan (the Plan). The total number of shares available for the grant of either stock options or compensation stock under the Plan is 3,000,000 shares, subject to adjustment. The exercise price per share of each stock option shall not be less than 20 percent of the fair market value of the Company's common stock on the date of grant. Stock options shall vest at the rate of at least 20 percent per year over five years from the date of grant. At September 30, 2015, there were 350,000 options issued under the Plan outstanding.

The Company also issues, from time to time, options which are not registered under a formal option plan. At September 30, 2015, there were 1,450,000 options outstanding that were not issued under the Plan.

There were no stock options issued or outstanding at and for the nine months ended September 30, 2014. A summary of all stock option activity at and for the nine months ended September 30, 2015 is presented below:

	# of Options			Weighted- Average Exercise Price
Outstanding at December 31, 2014		1,000,000	(1)	$	0.40
Options granted		800,000	(2)		1.92
Options exercised		-			-
Options canceled		-			-
Outstanding at September 30, 2015		1,800,000		$	1.07
Exercisable at September 30, 2015		1,000,000		$	0.40

(1) Non-Plan options

(2) 350,000 options granted under 2015 Stock Incentive Plan; 450,000 non-plan options

The aggregate intrinsic value of options outstanding at September 30, 2015 was $0.

At September 30, 2015, there were 750,000 unvested options with an aggregate grant date fair value of $539,000. Of these unvested options, 100,000 will vest at the discretion of the Company's board of directors and 150,000 will vest upon the option recipient completing a performance condition. The remaining 500,000 unvested options will vest in accordance with the vesting schedule in each respective option agreement, which is generally over a period of 6 to 24 months. The aggregate intrinsic value of unvested options at September 30, 2015 was $0. During the nine-months ended September 30, 2015, 50,000 non-Plan options became vested but are not exercisable until October 2015.

The Company uses the Black-Scholes valuation model to measure the grant-date fair value of stock options. The grant-date fair value of stock options issued to employees is recognized on a straight-line basis over the requisite service period. Stock-based awards issued to nonemployees are recorded at fair value on the measurement date and are subject to periodic market adjustments as the underlying stock-based awards vest. To determine the fair value of stock options using the Black-Scholes valuation model, the calculation takes into consideration the effect of the following:

• Exercise price of the option

• Fair value of the Company's common stock on the date of grant

• Expected term of the option

• Expected volatility over the expected term of the option

• Risk-free interest rate for the expected term of the option

The calculation includes several assumptions that require management's judgment. The expected term of the options is calculated using the simplified method described in GAAP. The simplified method defines the expected term as the average of the contractual term and the vesting period. Estimated volatility is derived from volatility calculated using historical closing prices of common shares of similar entities whose share prices are publicly available for the expected term of the options. The risk-free interest rate is based on the U.S. Treasury constant maturities in effect at the time of grant for the expected term of the options.

The following weighted-average assumptions were used in the Black-Scholes valuation model for options granted during the nine months ended September 30, 2015:

Risk-free interest rate	0.75	%
Expected term (in years)	2.48
Dividend yield	-
Expected volatility	72	%

The weighted-average grant-date fair value per share of stock options granted during the six months ended September 30, 2015 was $0.71. The aggregate grant date fair value of the 800,000 options granted during the nine months ended September 30, 2015 was $565,500.

For the nine months ended September 30, 2015, total stock option expense related to stock options was $124,250. At September 30, 2015, the total compensation cost related to stock options not yet recognized is approximately $473,125, which is expected to be recognized over a weighted-average period of approximately 1.57 years.