Note 10 – Stock-based Compensation

The Company’s Amended and Restated 2013 Equity Compensation Plan (the “Plan”) 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 Compensation Committee of the Board of Directors. The Compensation 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 or four years. The term of the options is no longer than ten years. As of September 30, 2019, the Company had 22,421,644 shares of common stock authorized for issuance under the Plan.

With the approval of the Board of Directors and a majority of 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 condensed consolidated statements of operations as follows:

The following table contains information about the Company’s stock plan at September 30, 2019:

The following table summarizes the Company’ stock option activity and related information for the period from December 31, 2018 to September 30, 2019 (options in thousands):

As of September 30, 2019, the number of vested shares underlying outstanding options was 11,313,021 at a weighted average exercise price of $1.16. The aggregate intrinsic value of in-the-money options outstanding as of September 30, 2019 was $0.6 million. As of September 30, 2019, there was approximately $3.9 million of total unrecognized share-based compensation. Such costs are expected to be recognized over a weighted average period of approximately 2.8 years.

All outstanding options expire ten years from date of grant. Options granted to employees prior to 2018 vest in equal monthly installments over three years. Beginning in 2018, options granted 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 nine months ended September 30, 2019 and 2018, the Company granted restricted stock awards for 415,178 and 713,266 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 to a vendor pursuant to a consulting agreement. The Company values restricted stock awards at the fair market value on the date of grant. The Company recorded the value of these restricted awards as general and administrative expense of approximately $238 thousand and $485 thousand in the condensed consolidated statement of operations for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, there was $122 thousand of total unrecognized compensation costs related to 200,000 non-vested restricted stock grants which are expected to be recognized over a weighted-average period of 0.5 years.

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 vendor’s consulting agreement, whereby the award vesting period and the service period defined pursuant to the terms of the consulting agreement may be different. Beginning January 1, 2019, stock options issued to consultants are recorded at fair value on the date of grant and the award is recognized as an expense on a straight-line basis over the requisite service period. The following weighted-average assumptions were used to calculate share-based compensation for the comparative periods presented:

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method” described in Staff Accounting Bulletin (SAB) 107 to estimate the expected term of its stock-based awards.

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