Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.21.1
Stock-Based Compensation
12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

5. Stock-Based Compensation

 

The Company issues common stock and stock options as incentive compensation to directors and as compensation for the services of employees, contractors and consultants of the Company.

 

On June 20, 2007, the Board of Directors of the Company approved the 2007 Stock Compensation Plan (the “2007 Plan”), which provided for the granting of awards, consisting of stock options, stock appreciation rights, performance shares, and restricted shares of common stock, to employees and consultants, for up to 416,667 shares of the Company’s common stock, under terms and conditions as determined by the Company’s Board of Directors. The 2007 Plan terminated on June 19, 2017. As of December 31, 2020, unexpired stock options for 208,333 shares were issued and outstanding under the 2007 Plan.

 

On July 14, 2020, the Board of Directors of the Company adopted the 2020 Stock Incentive Plan (the “2020 Plan”), which provides for the granting of equity-based awards, consisting of stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards to employees, officers, directors and consultants of the Company and its affiliates for up to 2,333,333 shares of the Company’s common stock, under terms and conditions as determined by the Company’s Board of Directors.

 

The fair value of each stock option awarded is calculated on the grant date using the Black-Scholes option-pricing model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect as of the grant date. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts and is assumed to be zero. The expected volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. Unless sufficient historical exercise data is available, the expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The fair market value of the common stock is determined by reference to the quoted market price of the common stock on the grant date.

 

For stock options requiring an assessment of value during the year ended December 31, 2020, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

Risk-free interest rate     0.23% to 0.31 %
Expected dividend yield     0 %
Expected volatility     207.67 %
Expected life     4 to 5 years  

 

For stock options requiring an assessment of value during the year ended December 31, 2019, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

Risk-free interest rate     1.47% to 1.85 %
Expected dividend yield     0 %
Expected volatility     133.01% to 171.87 %
Expected life     5 years  

 

Effective August 4, 2018, in conjunction with their appointments as directors of the Company, the Company granted stock options to each of Dr. Winson Sze Chun Ho and Dr. Yun Yen to purchase an aggregate of 33,333 shares of the Company’s common stock, exercisable for a period of five years from the grant date at $1.68 per share, which was the approximate fair market value of the Company’s common stock on such date, with one-half of such stock options (16,667 shares for each director) vesting on August 4, 2018 and the remaining one-half of such stock options (16,667 shares for each director) vesting on August 4, 2019. The aggregate fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $104,920 ($1.5738 per share), of which $101,475 was attributable to the stock options fully-vested on August 4, 2018 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options was charged to operations ratably from August 4, 2018 through August 4, 2019. During the year ended December 31, 2019, the Company recorded a charge to general and administrative costs in the consolidated statement of operations of $31,046 with respect to these stock options.

 

Effective May 22, 2019, in recognition with their service as directors of the Company over the past year, the Company granted to each of Dr. Winson Sze Chun Ho, Dr. Yun Yen, Dr. Stephen Forman, and Dr. Philip Palmedo, fully-vested stock options to purchase an aggregate of 33,333 shares (8,333 shares to each director) of the Company’s common stock, exercisable for a period of five years from the grant date at $6.60 per share, which was the approximate fair market value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $189,060 ($5.6718 per share) and was recorded as a charge to general and administrative costs in the consolidated statement of operations on the grant date.

 

Effective May 22, 2019, in recognition of his continuing service as consultant to the Company, the Company granted to Eric Forman fully-vested stock options to purchase 16,667 shares of the Company’s common stock, exercisable for a period of five years from the grant date at $6.60 per share, which was the approximate fair market value of the Company’s common stock on such date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $94,525 ($5.6718 per share) and was recorded as a charge to general and administrative costs in the consolidated statement of operations on the grant date.

 

Effective July 23, 2019, the Company granted Francis Johnson, a consultant to the Company, fully-vested stock options to purchase 83,333 shares of the Company’s common stock in recognition of Mr. Johnson’s continuing contributions to the development of the Company’s proprietary compounds. The stock options are exercisable for a period of five years from the date of grant at $6.00 per share, which was the fair market value of the Company’s common stock on the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $434,024 ($5.2083 per share) and was recorded as a charge to research and development costs in the consolidated statement of operations on the grant date.

 

Effective September 14, 2015, in connection with the Collaboration Agreement with BioPharmaWorks as described at Note 7, the Company issued to BioPharmaWorks two stock options, in the form of warrants, to purchase 166,666 shares (83,333 shares per warrant) of the Company’s common stock. The first warrant vested on September 14, 2016 and was exercisable for a period of five years from the date of grant at $6.00 per share. The second warrant vested on September 14, 2017 and was exercisable for a period of five years from the date of grant at $12.00 per share. On July 3, 2020, the Company’s Board of Directors approved an extension of the term of the outstanding warrants to acquire an aggregate of 166,666 shares of the Company’s common stock from September 14, 2020 to September 14, 2025. The Company’s closing stock price on July 2, 2020 was $5.40 per share. The fair value of the extension of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was measured for accounting purposes as the difference in the fair value of the stock options immediately before and immediately after the extension date and was determined to be $670,715 ($4.0242 per share), which was recorded as a charge to research and development costs in the consolidated statement of operations on that date.

  

On July 15, 2020, as amended on August 12, 2020, in connection with the employment agreement entered into with Eric Forman, Mr. Forman was granted options for 58,333 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options have a term of five years and an exercise price of $7.14 per share, which was equal to the closing price of the Company’s common stock on the grant date. The options vested as to 25% on August 12, 2020, and will vest 25% on each of the first, second and third anniversaries of the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $400,855 ($6.8718 per share), of which $100,214 was attributable to the stock options fully-vested on August 12, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options will be charged to operations ratably from August 12, 2020 through August 12, 2023. During the year ended December 31, 2020, the Company recorded a charge to general and administrative costs in the consolidated statement of operations of $138,926 with respect to these stock options.

 

On August 1, 2020, in connection with an employment agreement entered into with Dr. James Miser, M.D., Dr. Miser was granted options for 83,334 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options have a term of five years and an exercise price of $7.14 per share, which was equal to the closing price of the Company’s common stock on the effective date of the employment agreement. The options vested as to 25% on the effective date, and will vest 25% on each of the first, second and third anniversaries of the effective date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $572,650 ($6.8718 per share), of which $143,163 was attributable to the stock options fully-vested on August 1, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options will be charged to operations ratably from August 1, 2020 through August 1, 2023. During the year ended December 31, 2020, the Company recorded a charge to general and administrative costs in the consolidated statement of operations of $202,782 with respect to these stock options.

 

On August 12, 2020, in connection with the employment agreement entered into with Robert N. Weingarten, Mr. Weingarten was granted options for 58,333 shares of the Company’s common stock. The options can be exercised on a cashless basis. The options have a term of five years and an exercise price of $7.14 per share, which was equal to the closing price of the Company’s common stock on the grant date. The options vested as to 25% on August 12, 2020, and will vest 25% on each of the first, second and third anniversaries of the grant date. The fair value of these stock options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $400,855 ($6.8718 per share), of which $100,214 was attributable to the stock options fully-vested on August 12, 2020 and was therefore charged to operations on that date. The remaining unvested portion of the fair value of the stock options will be charged to operations ratably from August 12, 2020 through August 12, 2023. During the year ended December 31, 2020, the Company recorded a charge to general and administrative costs in the consolidated statement of operations of $138,926 with respect to these stock options.

 

On December 21, 2020, the Company entered into a services agreement with IRTH Communications, LLC and agreed to issue 27,420 shares of common stock, fully vested upon issuance, with a grant date fair value of $100,000 ($3.65 per share), which was charged to general and administrative costs in the consolidated statement of operations at December 31, 2020 (see Note 7).

 

A summary of stock-based compensation costs for the years ended December 31, 2020 and 2019 is as follows:

 

   

Years Ended

December 31,

 
    2020     2019  
             
Related parties   $ 480,634     $ 314,631  
Non-related parties     770,715       434,024  
Total stock-based compensation costs   $ 1,251,349     $ 748,655  

 

 A summary of stock option activity, including options issued in the form of warrants, during the years ended December 31, 2020 and 2019 is presented below.

 

    Number of Shares    

Weighted Average

Exercise

Price

    Weighted Average Remaining Contractual Life (in Years)  
                   
Stock options outstanding at December 31, 2018     1,291,667     $ 3.498          
Granted     133,333       6.228          
Exercised                    
Expired     (116,667 )     1.926          
Stock options outstanding at December 31, 2019     1,308,333       3.648          
Granted     200,000       7.140          
Exercised                    
Expired     (33,333 )     3.000          
Stock options outstanding at December 31, 2020     1,475,000     $ 4.136       3.09  
                         
Stock options exercisable at December 31, 2019     1,308,333     $ 3.648          
Stock options exercisable at December 31, 2020     1,325,000     $ 3.796       2.92  

 

Total deferred compensation expense for the outstanding value of unvested stock options was approximately $894,000 at December 31, 2020, which will be recognized subsequent to December 31, 2020 over a weighted-average period of approximately thirty-one months.

 

The exercise prices of common stock options outstanding and exercisable, including options issued in the form of warrants, at December 31, 2020 are as follows:

 

Exercise

Prices

   

Options

Outstanding (Shares)

   

Options

Exercisable (Shares)

 
               
$ 0.720       75,000       75,000  
$ 0.900       50,000       50,000  
$ 0.960       33,333       33,333  
$ 1.200       83,333       83,333  
$ 1.680       66,667       66,667  
$ 3.000       666,667       666,667  
$ 6.000       166,667       166,667  
$ 6.600       50,000       50,000  
$ 7.140       200,000       50,000  
$ 12.000       83,333       83,333  
          1,475,000       1,325,000  

 

The intrinsic value of exercisable but unexercised in-the-money stock options at December 31, 2020 was approximately $747,750, based on a fair market value of $3.17 per share on December 31, 2020.

 

Outstanding stock options to acquire 150,000 shares of the Company’s common stock had not vested at December 31, 2020.

  

The Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.