9. Equity Incentive Plan

 

In 2005, the Company approved the 2005 Equity Incentive Plan (the “2005 Plan”). The 2005 Plan provides for the granting of options, restricted stock or other stock-based awards to employees, officers, directors, consultants and advisors. During 2010, the maximum number of shares of Common Stock that may be issued pursuant to the 2005 Plan was increased to 891,222 shares. The Board of Directors (the “Board”) is responsible for administration of the 2005 Plan. The Company’s Board determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. Incentive stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of fair value in the case of holders of more than 10% of the Company’s voting stock) and with a term not to exceed ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company’s voting stock). Nonqualified stock options may be granted to any officer, employee, consultant or director at an exercise price per share of not less than the par value per share.  Following adoption of the 2014 Equity Incentive Plan (the “2014 Plan”), no further grants were made under the 2005 Plan.

 

The Company’s Board adopted the 2014 Plan and the Employee Stock Purchase Plan (the “ESPP”), and the Company’s Stockholders approved the 2014 Plan and the ESPP Plan in February 2015. On December 27, 2017, the Company issued 53,477 shares to employees pursuant to the ESPP. As of December 31, 2017, the maximum number of shares of Common Stock that may be issued pursuant to the 2014 Plan and the ESPP is 1,690,123 and 117,090 shares, respectively.

 

In January 2017, the number of shares of common stock issuable under the 2014 Plan automatically increased by 405,235 shares pursuant to the terms of the 2014 Plan. Additionally, in June 2017, the number of shares of common stock issuable under the 2014 Plan was increased by 250,000 shares and issuable under the ESPP was increased by 100,000 shares, as approved by the Company’s Stockholders. These additional shares are included in the total of 1,690,123 shares issuable under the 2014 Plan and 117,090 shares issuable under the ESPP.

 

The following is a summary of stock option activity for the twelve months ended December 31, 2017 and 2016:

 

		Number of Options			Weighted- Average Exercise Price			Weighted-Average Contractual Life (In Years)
Outstanding at December 31, 2015			1,277,367		$	2.75			4.94
Granted			377,771			2.74			9.79
Exercised			(86,765)			0.65
Forfeited			(58,662)			3.31
Outstanding at December 31, 2016			1,509,711		$	2.85			5.04
Granted			568,450			1.39			9.41
Exercised			(61,078)			0.67
Expired			(92,630)			2.10
Forfeited			(31,450)			2.99
Outstanding at December 31, 2017			1,893,003		$	2.49			5.40
Exercisable at December 31, 2017			1,208,450		$	2.73			4.87
Vested and Expected to Vest at December 31, 2017			1,208,450		$	2.73			4.87

 

The Company originally estimated the volatility of its Common Stock based on the average of published volatilities contained in the most recent audited financial statements of other SEC reporting companies in industries similar to that of the Company. Effective July 1, 2016, the Company determined that the prior methodology for measuring the volatility of its Common Stock was no longer the best estimate of volatility and the Company will measure volatility using its Common Stock volatility. The Company believes that the public market for its Common Stock is the best measure to use as an input in the option pricing model. All future grants of stock options will use the Company’s historic Common Stock volatility.

 

During the years ended December 31, 2017 and December 31, 2016, the Board approved the grant of options to purchase 568,450 and 377,771 shares of its Common Stock, respectively. All option grants were pursuant to the 2014 Plan. In general, options granted under the 2014 Plan vest 33.33% on the one-year anniversary of the grant date, and the remainder ratably over the 24-month period following the one-year anniversary.

 

On February 6, 2017, the Board approved the grant of 104,000 shares of restricted stock to eight employees. These vest 33.33% on the one-year anniversary of the grant date, and the remainder ratably over the 24-month period following the one-year anniversary. As of December 31, 2017, none of these shares were vested and 1,000 shares were cancelled due to an employee termination.

 

For the twelve months ended December 31, 2017 and 2016, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:

 

		2017			2016
Risk-Free Interest Rate			1.82	%		1.82	%
Expected Life			7.25 years			7.00 years
Expected Volatility			170	%		99	%
Expected Dividend Yield			0	%		0	%

 

The total stock-based compensation expense for employees and non-employees is included in the accompanying Consolidated Statements of Operations and as follows:

 

		Year Ended December 31
		2017			2016
Research and Development		$	193,688		$	46,288
General and Administrative			676,620			464,707
		$	870,308		$	510,995