Note 10 – Stock-based Compensation

In August 2013, the Company adopted the 2013 Equity Compensation Plan (the “Plan”), which provides for the granting of incentive stock options, nonqualified stock options, restricted stock units, performance units, and stock purchase rights. Options under the Plan may be granted at prices not less than 100% of the fair value of the shares on the date of grant as determined by the Board Committee. The Board Committee determines the period over which the options become exercisable subject to certain restrictions as defined in the Plan, with the current outstanding options generally vesting over three years. The term of the options is no longer than ten years. As of December 31, 2018, the Company had 17,890,137 shares of common stock authorized for issuance under the plan.

With the approval of the Board of Directors and majority Shareholders, effective May 8, 2014, the Plan was amended and restated. The amendment provides for an automatic increase in the number of shares of common stock available for issuance under the Plan each January (with Board approval), commencing January 1, 2015 in an amount up to four percent (4%) of the total number of shares of common stock outstanding on the preceding December 31st.

The Company recognized stock-based compensation expense (options and restricted share grants) in its consolidated statements of operations as follows:

The following table contains information about the Company’s stock plan at December 31, 2018:

* Includes both stock grants and option grants

The following table summarizes the Company’ stock option activity and related information for the period from January 1, 2017 to December 31, 2018 (options in thousands):

The following table summarizes outstanding options at December 31, 2018, by their exercise price:

As of December 31, 2018, the number of vested shares underlying outstanding options was 9,514,815 at a weighted average exercise price of $1.17. The aggregate intrinsic value of in-the-money options outstanding as of December 31, 2018 was $0.5 million. The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $0.60 on December 31, 2018, and the exercise price of options, multiplied by the number of options. As of December 31, 2018, there was approximately $3.0 million of total unrecognized share-based compensation. Such costs are expected to be recognized over a weighted average period of approximately 2.2 years.

All options expire ten years from date of grant. Options granted to employees prior to 2018 vest entirely and evenly over three years. The Company changed its standard vesting terms at the end of 2017 and recent option grants to employees vest over four years, with 25% of the shares vesting on the first annual anniversary of grant and the remaining shares vesting in 36 equal monthly installments over the following 3 years. A portion of options granted to consultants vests over four years, with the remaining vesting being based upon the achievement of certain performance milestones, which are tied to either financing or drug development initiatives.

During the years ending December 31, 2017 and December 31, 2018, the Company granted restricted stock awards for 826,819 and 596,960 shares of common stock, respectively. These awards are typically granted to members of the Board of Directors as payment in lieu of cash fees or as payment pursuant to a consulting agreement. The Company values restricted stock awards at the fair market value on the date of grant. The Company recorded as general and administrative expense $616 thousand and $1,144 thousand in the consolidated statement of operations for the year ended December 31, 2018 and 2017, respectively.

The Company recognizes compensation expense for stock option awards and restricted stock awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period, with the exception of awards granted subject to a consulting agreement, whereby the award vesting period and the service period defined pursuant to the terms of the consulting agreement may be different. Stock options issued to consultants are revalued quarterly until fully vested, with any change in fair value expensed. The following weighted-average assumptions were used to calculate share-based compensation:

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Hence, the Company uses the “simplified method” described in Staff Accounting Bulletin (SAB) 107 to estimated expected term of share option grants.

The expected stock price volatility assumption is based the Company’s historical stock price volatility.