Quarterly report pursuant to Section 13 or 15(d)

STOCK BASED COMPENSATION

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STOCK BASED COMPENSATION
6 Months Ended
Jun. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK BASED COMPENSATION

NOTE 12: STOCK BASED COMPENSATION

 

Stock Option and Incentive Plan

 

On September 28, 2010, the Board of Directors approved the adoption of the 2010 Stock Option and Incentive Plan the (“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. No other awards may be granted under the 2010 Plan after the date that is 10 years from the date of stock-holder 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.

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       18,368  
2017       12,623  
2018       106,076  
Total additional shares       152,031  

  

The Company granted 611,668 options to purchase shares of common stock under the 2010 Plan during the six months ended June 30, 2018. No options were exercised during the three or six months ended June 30, 2018. There are 3,118 shares available for grant under the 2010 Plan as of June 30, 2018.

 

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 $179,050 and $181,408 for the three months ended June 30, 2018 and 2017, respectively and $394,189 and $336,116 for the six months ended June 30, 2018 and 2017, respectively (excluding the liability options discussed below). The fair value of stock options granted for the six months ended June 30, 2018 and 2017 was calculated using the Black-Scholes option-pricing model applying the following assumptions:

 

    Period ended June 30,  
    2018     2017  
             
Risk free interest rate     2.47% - 2.71%       1.86% - 2.04%  
Expected term     5.24- 5.57 years       5.32- 6.36 years  
                 
Dividend yield     - %        - %   
Expected volatility     108.81% - 126.43%       112.86% - 114.19%  

 

Options issued and outstanding as of June 30, 2018 under the 2010 Plan and their activities during the six months 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, 2018     172,510     $ 49.27             $    
Granted     611,668       2.39                  
Forfeited     (338 )     5.64                  
Expired                                
Outstanding as of June 30, 2018     783,840       12.70       9.67     $    
Exercisable as of June 30, 2018     82,536       93.84       8.19     $    
Vested and expected to vest     783,840       12.70       9.67     $    

 

At June 30, 2018, there were 701,304 unvested options outstanding and the related unrecognized total compensation cost associated with these options was approximately $1,810,227. This expense is expected to be recognized over a weighted-average period of 1.71 years.

 

Option Grants Classified as Liabilities (“Liability Grants”)

 

On June 27, 2018, the Company issued option awards to Dr. Steven C. Quay, Chairman of the Board, President and Chief Executive Officer and Kyle Guse, Chief Financial Officer, General Counsel and Secretary. The Company granted Dr. Quay 2,300,000 options and granted Mr. Guse 700,000 options, each exercisable for an equivalent number of shares of Company common stock. The options were granted pursuant to an option award agreement and were granted outside the Company’s 2010 Plan; however, they are subject to the terms and conditions of the 2010 Plan.

 

 

The Liability Grants are exercisable for shares of common stock at an exercise price of $2.38 per share, which was the fair market value on the date of grant. The options have an exercise period of ten years from their date of issuance. If at the time the options are exercised the Company cannot deliver shares of common stock to the optionee including, for example, if there are 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 may only be exercised on a cash “net basis” so that the Company will pay cash in an amount equal to the excess of the fair market value of the common stock over the option exercise price. There currently are not sufficient shares available under the Plan and the Company would be obligated to settle these options in cash if they were exercised. Because these options contain provisions that could require the Company to settle the options in cash in an event outside the Company’s control, they are accounted for as liabilities.

 

The Liability Grants are subject to vesting requirements. Twenty-five percent of the options have vested as of the grant date, 50% of the options will vest quarterly over two years, and the remaining 25% will vest upon achievement of certain milestones related to clinical trial progress.

 

Compensation costs associated with the Liability Grants are 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 is probable the performance criteria will be achieved for options that vest based on performance. Compensation cost is remeasured each period based on the market value of our underlying stock until award vesting or settlement.

 

For the three and six months ended June 30, 2018, the Company recognized compensation expense related to these options of $1,557,163.

 

The fair value of liability options granted for the six months ended June 30, 2018 was calculated using the Black-Scholes option-pricing model applying the following assumptions:

 

    Six months ended June 30,  
    2018  
       
Risk free interest rate      2.71%  
Expected term     5.0 years  
         
Dividend yield     - %   
Expected volatility     125.0%