Equity Incentive Plan | Note 10. Equity Incentive Plan Stock Options As of December 31, 2018, there was approximately $9,271,000 of total unrecognized compensation expense related to non-vested stock options. The cost is expected to be recognized over the remaining weighted average service period of 1 On July 30, 2018, the Board approved modifications to the vesting terms of stock options awarded to employees and the Board of Directors under the 2015 Equity Incentive Plan on May 24, 2018 which previously vested over a four-year period (with 25% of the award vesting on the one-year anniversary of grant and the remaining vesting in pro rata quarterly increments), and were modified to vest instead on a three-year vesting schedule, vesting in pro rata quarterly increments. No other terms of these options were modified. Due to the accelerated vesting as a result of these modifications, the Company recorded an additional $432,000 of expense during the nine months ended December 31, 2018. Stock based compensation expense recognized was as follows: Three Months Ended December 31, Nine Months Ended December 31, 2018 2017 2018 2017 General and administrative $ 1,316,000 $ 1,400,000 $ 4,548,000 $ 3,300,000 Research and development 684,000 1,600,000 2,154,000 3,300,000 Total $ 2,000,000 $ 3,000,000 $ 6,702,000 $ 6,600,000 The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. For employees and non-employees, the compensation expense is amortized on a straight-line basis over the requisite service period, which approximates the vesting period. The Company accounts for forfeitures as they occur, rather than estimating forfeitures as of an award’s grant date. The expected volatility of options granted has been determined using the method described under ASC 718 using the expected volatility of similar companies. The expected term of options granted to employees in the current fiscal period has been based on the term by using the simplified method as allowed under SAB No. 110. The expected term of options granted to non-employees and consultants was based on the grant’s full contractual life. Effective July 1, 2018, the Company adopted ASU 2018-07 and, as such, the expected term is determined using the simplified method for options granted to non-employees and consultants. Prior to the three months ended December 31, 2017, the Company used the full contractual term as the expected term in its Black Scholes model to estimate stock option value. The Company used the full contractual term because there was no history of exercise activity and the stock was thinly-traded on the OTC Market. Beginning in the three months ended December 31, 2017, the Company determined the use of the simplified method was more appropriate than the full contractual term due to the increased trading volume and activity during the quarter and the increased market and demand for shares. Based on these factors, the Company deemed it no longer appropriate to use the full contractual term for expected life, because these changes in the business indicate the likelihood that there will be exercise activity before completion of the full contractual term. The Company considered other methods to estimate expected term other than the simplified method. However, as noted above, there is no historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded and no other refined estimate of expected life that is appropriate. The weighted average assumptions used to determine such values are presented in the following table: December 31, 2018 December 31, 2017 Risk free interest rate 2.90 % 2.13 % Expected volatility 74.89 % 83.41 % Expected term (in years) 5.8 years 7.6 years Dividend yield 0 % 0 % The following is a summary of the status of the Company’s stock options as of December 31, 2018: Number of Options Weighted Average Exercise Price Outstanding at March 31, 2018 5,438,072 $ 5.11 Granted 3,643,233 2.65 Exercised (100,000 ) 2.70 Forfeited/Cancelled (50,000 ) 2.33 Outstanding at December 31, 2018 8,931,305 4.15 Options exercisable at December 31, 2018 4,893,714 4.90 Stock Options Outstanding Stock Options Vested Range of Exercise Price Number Outstanding at December 31, 2018 Weighted Average Exercise Price Weighted Average Remaining Life (Years) Aggregate Intrinsic Value Number Vested at December 31, 2018 Weighted Average Exercise Price Aggregate Intrinsic Value $2.25-$8.75 8,931,305 $ 4.15 8.13 $ 5,563,315 4,893,714 $ 4.90 $ 1,644,654 The intrinsic value, which is calculated as the excess of the market value as of December 31, 2018 over the exercise price of the options, is approximately $5,563,000 and $1,645,000 for outstanding stock options and vested stock options, respectively. The market value per share as of December 31, 2018 was $3.69 as reported by the NASDAQ Capital Market. |