| Note 4. Common Stock Options | Approval
of the 2013 Long-Term Incentive Plan On
June 20, 2013, the Board of Directors (the Board) adopted, subject to receiving shareholder approval, the 2013 Long-Term
Incentive Plan (the Incentive Plan). The Incentive Plan provides for the issuance of stock options of up to 20,000,000
shares (subject to adjustment) of the Companys common stock to officers, directors, key employees and consultants of the
Company. Options granted to employees under the Incentive Plan, including directors and officers who are employees, may be incentive
stock options or non-qualified stock options; options granted to others under the Incentive Plan are limited to non-qualified
stock options. On November 15, 2013, shareholders owning a majority of the Companys issued and outstanding shares approved
the Incentive Plan. The
Incentive Plan is administered by the Board or a committee designated by the Board. Subject to the provisions of the Incentive
Plan, the Board has the authority to determine the officers, employees and consultants to whom options will be granted, the number
of shares covered by each option, vesting rights and the terms and conditions of each option that is granted to them; however,
no person may be granted in any of the Companys fiscal year, options to purchase more than 2,000,000 shares under the Incentive
Plan, and the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive
stock options are exercisable for the first time by an optionee during any calendar year cannot exceed $100,000. Options granted
pursuant to the Incentive Plan are exercisable no later than ten years after the date of grant. The
exercise price per share of common stock for options granted under the Incentive Plan will be the fair market value of the Companys
common stock on the date of grant, using the closing price of the Companys common stock on the last trading day prior to
the date of grant, except for incentive stock options granted to a holder of ten percent or more of the Companys common
stock, for whom the exercise price per share will not be less than 110% of the fair market value. No option can be granted under
the Incentive Plan after June 20, 2023. On
May 29, 2015, the Company appointed Patricia Jeanne Riley to its Scientific Advisory Board and issued Ms. Riley an option to purchase
7,500 shares of the Companys common stock at a price of $1.43 per share, the closing price of the Companys common
stock as quoted on the OTCQB on May 28, 2015. On June 15, 2015, the Company appointed Dr. Steven Wang to its Scientific Advisory
Board and issued Dr. Wang an option to purchase 7,500 shares of the Companys common stock at a price of $1.25 per share,
the closing price of the Companys common stock as quoted on the OTCQB on June 12, 2015. The shares underlying the options
may be exercised on a cashless basis using the formula contained therein and, subject to each individuals
continued service with the Company. The shares underlying the options vest on November 30, 2015 and December 15, 2015, respectively. As
of June 30, 2015, there were 19,800,000 shares available for grant. Stock
Option Activity The
following table summarizes stock option activity for the period ended June 30, 2015:
Weighted
Average
Weighted Remaining Aggregate
Options Average Contractual Intrinsic
Outstanding Exercise
Price Life
(Years) Value
Balance January
1, 2015 185,000 $ 0.83 9.12 $ 94,150
Options granted 15,000 1.34 10.00 $ 0
Balance June
30, 2015 200,000 $ 0.80 8.87 $ 94,150
Exercisable
at June 30, 2015 100,000 $ 0.81 8.71 $ 53,250 The
fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. There were 15,000
stock options granted during the three months ended June 30, 2015, 7,500 shares each to a member of the Companys Scientific
Advisory Board. The weighted-average fair value of stock options granted in 2015 was approximately $1.00 per share. The weighted
average fair value of stock options granted during 2014 was $1.05 per share. Assumptions regarding volatility, expected term,
dividend yield and risk-free interest rate are required for the Black-Scholes model. The volatility assumption is based on the
Companys historical experience. The risk-free interest rate is based on a U.S. treasury note with maturity similar to the
option awards expected life. The expected life represents the average period of time that options granted are expected to
be outstanding. The assumptions for volatility, expected life, dividend yield and risk-free interest rate for options granted
are presented in the table below:
2015 2014
Weighted average
risk-free interest rate 1.49
1.71% 1.43 1.62%
Expected life in
years 5.50 4.50 5.50
Weighted avg. expected
volatility 94.4% 99.5 105.3%
Expected dividend
yield $0 $0 Stock
option expense reflected in the consolidated statements of operations related to stock options issued to our non-employee scientific
advisory board members and consultants are recognized at fair value using the Black-Scholes option-pricing model with weighted
average assumptions described above. For the three months ended June 30, 2015 and 2014, stock-based compensation expense recognized
from stock option awards granted to non-employees included in total stock-based compensation expense amounted to $1,896 and $0,
respectively. For the six months ended June 30, 2015 and 2014, stock-based compensation expense recognized from stock option awards
granted to non-employees included in total stock-based compensation expense amounted to $1,896 and $0, respectively. During
the three months ended June 30, 2015, total stock-based compensation expense of $9,719 was recognized as general and administrative
expenses. During the three months ended June 30, 2014, total stock-based compensation expense of $12,573 was recognized as general
and administrative expenses. During the six months ended June 30, 2015, total stock-based compensation expense of $20,663 was
recognized as general and administrative expenses. During the six months ended June 30, 2014, total stock-based compensation expense
of $19,355 was recognized as general and administrative expenses. There
were 100,000 stock options vested and 100,000 stock options unvested as of June 30, 2015. As of June 30, 2015, the Company had
$13,046 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized by June
15, 2020. The
Company issues new shares when options are exercised. |
