4. SHARE BASED PAYMENTS

On June 18, 2014, the Company’s Board of Directors authorized and approved the adoption of the 2014 Stock Incentive Plan (“2014 Plan”), under which an aggregate of 2,421,603 shares of common stock may be issued. Pursuant to the terms of the 2014 Plan, the Company is authorized to grant stock options, as well as awards of stock appreciation rights, restricted stock, unrestricted shares, restricted stock units and deferred stock units. These awards may be granted to directors, officers, employees and eligible consultants. Vesting and the term of an option is determined at the discretion of the Company’s Board of Directors. On August 22, 2017, the Company’s Board of Directors approved the amended and restated 2014 Plan to correct for a formulaic error included in the deemed net stock and cashless exercise equation within the 2014 Plan. This amendment had no impact on the Company’s consolidated financial statements.

On August 8, 2016, the Company’s Board of Directors authorized and approved the adoption of the 2016 Omnibus Incentive Plan (“2016 Plan” and, together with the 2014 Plan, the “Plans”), under which an aggregate of 3,000,000 shares of common stock may be issued. Pursuant to the terms of the 2016 Plan, the Company is authorized to grant stock options, as well as awards of stock appreciation rights, restricted stock, unrestricted shares, restricted stock units, stock equivalent units and performance-based cash awards. These awards may be granted to directors, officers, employees and eligible consultants. Vesting and the term of an option is determined at the discretion of the Company’s Board of Directors.

As of March 31, 2018, there were an aggregate of 2,733,614 shares of common stock remaining available for grant under its Plans.

For the three months ended March 31, 2018 and 2017, the Company did not issue any stock options t employees, directors or non-employees.

The following is a summary of stock option activity during the three months ended March 31, 2018:

				Weighted
				Average		Aggregate
	Number			Exercise Price		Intrinsic Value
	of Options			(CAD$)		(CAD$ in '000s)
Outstanding as of December 31, 2017		2,448,646		$	7.35	$	21,089
Exercised⁽¹⁾		(80,000	)		3.00	560
Outstanding as of March 31, 2018		2,368,646		$	7.50	$	13,119
Exercisable as of March 31, 2018		1,371,739		$	5.85	$	9,934

(1) For the three months ended March 31, 2018, 80,000 stock options were exercised on a cashless basis resulting in 17,091 common shares being withheld.

The Company has adopted the simplified method prescribed by the SEC in SAB Topic 14 with respect to estimating the expected term of a stock option as its limited share purchase option history does not provide a reasonable basis to estimate the expected term. Expected volatility is determined by reference to the average volatility rates of other companies in the same industry due to the Company’s limited trading history. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2018 and 2017, was $0.6 million and $0.1 million, respectively.

The following table summarizes stock options outstanding and exercisable by employees and directors as of March 31, 2018:

			Options
			Outstanding
Number of			Remaining						Number of
Options			Contractual Life		Exercise		Grant Date Fair		Options
Outstanding		Expiration Date	(In Years)		Price (CAD)		Value (CAD)		Exercisable
	360,000	June 18, 2019		1.22	$	3.00	$	1.00		360,000
	80,000	June 18, 2019		1.22	$	3.00	$	1.32		80,000
	20,000	December 8, 2019		1.69	$	14.60	$	6.55		20,000
	80,000	December 8, 2019		1.69	$	14.80	$	6.46		80,000
	20,000	March 16, 2020		1.96	$	16.00	$	7.09		20,000
	8,500	August 14, 2020		2.38	$	4.90	$	1.94		8,500
	150,000	October 21, 2020		2.56	$	4.20	$	1.80		112,500
	20,000	December 31, 2020		2.76	$	6.20	$	2.49		20,000
	595,000	July 13, 2020		2.29	$	6.95	$	3.23		396,666
	20,000	August 8, 2020		2.36	$	6.55	$	3.23		10,000
	617,000	April 17, 2027		9.05	$	10.80	$	7.76		-
	6,146	May 18, 2027		9.14	$	10.00	$	5.23		3,073
	10,000	May 18, 2027		9.14	$	10.00	$	7.63		-
	30,000	August 8, 2027		9.36	$	13.15	$	8.86		-
	2,016,646									1,110,739

As of March 31, 2018 and 2017, the unrecognized compensation cost related to non-vested stock options outstanding for employees and directors, was $3.3 million and $1.0 million, respectively, to be recognized over a weighted-average remaining vesting period of approximately 2.3 years and 1.2 years, respectively. The Company recognizes compensation expense for only the portion of awards that are expected to vest.

During the fourth quarter of 2017, upon a review of the Company’s equity compensation awards granted under the 2016 Plan it determined that it had inadvertently exceeded the annual per-person sub-limits involving certain awards previously made to a current executive officer. The aggregate amount of common stock represented by this excess award, which consisted of stock options, was 60,000 shares. This excess award was deemed to have been granted outside of the 2016 Plan and as such the Company applied liability accounting to the awards. As a result, this excess award is being remeasured at each reporting period until such time that the Company’s shareholders approve the excess award at which time the liability will be reclassified to additional paid-in capital. The unrecognized fair value calculated for the excess award as of the date of shareholders’ approval will be recognized as compensation expense ratably over the remaining requisite service period for the excess award.

Non-Employee Stock Options

The following table summarizes stock options outstanding and exercisable by non-employees as of March 31, 2018:

			Options
			Outstanding
Number of			Remaining						Number of
Options			Contractual Life		Exercise		Grant Date Fair		Options
Outstanding		Expiration Date	(In Years)		Price (CAD)		Value (CAD)		Exercisable
	80,000	June 18, 2019		1.22	$	3.00	$	1.32		80,000
	30,000	December 8, 2019		1.69	$	14.60	$	8.25		30,000
	82,000	October 3, 2020		2.76	$	6.75	$	4.00		41,000
	110,000	October 28, 2020		2.51	$	4.20	$	2.20		110,000
	20,000	May 18, 2027		9.14	$	10.00	$	8.69		-
	15,000	August 8, 2027		9.36	$	13.15	$	11.70		-
	15,000	November 6, 2027		9.61	$	20.65	$	19.93		-
	352,000									261,000

As of March 31, 2018, the unrecognized compensation cost related to non-vested stock options outstanding for non-employees, was $0.2 million to be recognized over a weighted-average remaining vesting period of approximately 1.1 years. The Company had no unrecognized compensation cost related to non-vested stock options for non-employees as of March 31, 2017. The Company recognizes compensation expense for only the portion of awards that are expected to vest.

In accordance with the guidance of ASC 815-40-15, stock options awarded to non-employees that are performing services for NHC are required to be accounted for as derivative financial instruments once the services have been performed and the options have vested because they are considered not to be indexed to the Company’s stock due to their exercise price being denominated in a currency other than NHC’s functional currency. Stock options awarded to non-employees that have not vested are re-measured at their respective fair values at each reporting period and accounted for as equity awards until the terms associated with their vesting requirements have been met. The changes in fair value of the unvested non-employee awards are reflected in their respective operating expense classification in the Company’s condensed consolidated statements of operations and comprehensive loss.

The non-employee stock options that are required to be accounted for as liabilities are summarized as follows (amounts in thousands):

	Three Months Ended March 31,
	2018			2017
Fair value of non-employee options at beginning of period	$	2,637		$	1,617
Exercise of non-employee options		(737	)		—
Change in fair value of non-employee stock options during the period		(571	)		162
Fair value of non-employee options at end of period	$	1,329		$	1,779

The non-employee stock options that have vested are required to be re-valued with the change in fair value recorded as a gain or loss in the change of fair value of derivative financial instruments and included in other income (expense) in the Company’s condensed consolidated statements of operations and comprehensive loss at the end of each reporting period. The fair value of the stock options will continue to be classified as a derivative financial instrument until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as such.

The fair value of non-employee liability classified awards as of March 31, 2018 and 2017 was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

	March 31, 2018			March 31, 2017
Stock price	CAD $12.87			CAD $10.50
Exercise price	CAD $4.83			CAD $6.15
Expected term	1.29 years			2.35 years
Expected volatility		67.92	%		85.39	%
Risk-free interest rate		1.60	%		0.81	%
Dividend rate		0.00	%		0.00	%

Restricted Stock Units

During the second quarter of 2017, the Company granted restricted stock units (“RSUs”) to certain employees under the 2016 Plan that vest over a three-year period, with 25% vesting immediately. The fair value of the restricted stock units was based on the closing price of the Company’s common stock on the date of grant. For the three months ended March 31, 2018, the Company had 4,915 RSUs outstanding with a weighted average grant date fair value of CAD$10.00 and 2,987 RSUs that had vested. The Company did not issue, and there were no exercises or forfeitures of RSUs for the three months ended March 31, 2018.

Stock-based compensation expense is classified in the Company’s condensed consolidated statements of operations and comprehensive loss as follows (amounts in thousands):

	Three Months Ended March 31,
	2018		2017
Research and development	$	99	$	25
General and administrative		288		217
Total	$	387	$	242