7. Stock-Based Compensation

Pursuant to the Merger (Note 1), the Company assumed the Aerpio Therapeutics, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). Options covering an aggregate of 821,914 and 898,962 shares of the Company’s common stock at September 30, 2018, and December 31, 2017, respectively, are still governed by the 2011 Plan except that all references in the 2011 Plan to Aerpio, will now be the Company.

In March 2017, the Company’s Board of Directors adopted, and the stockholders approved, the 2017 Stock Option and Incentive Plan (the “2017 Plan”), that became effective in April 2017. The 2017 Plan provides for the issuance of incentive awards up to 4,600,000 shares of common stock to officers, employees, consultants and directors, less the number of shares subject to issued and outstanding awards under the 2011 Plan that were assumed in the Merger. The 2017 Plan also provides that the number of shares reserved for issuance thereunder will be increased annually on the first day of each year beginning in 2018 by four percent (4%) of the shares of our common stock outstanding on the last day of the immediately preceding year or such smaller increase as determined by our Board of Directors. In April 2018, the Company’s Board of Directors approved a 4% increase adding 1,082,802 shares to the 2017 Plan. As of September 30, 2018, and December 31, 2017, 2,615,062 and 1,179,410 stock awards were outstanding under the 2017 Plan and the 2011 Plan, respectively. This excludes 733,570 inducement stock awards issued outside of the 2017 Plan and the 2011 Plan outstanding at September 30, 2018, and December 31, 2017.

Stock Options

The options granted generally vest over 48 months. Under the 2017 Plan, options vest in installments of 25% at the one-year anniversary and thereafter in 36 equal monthly installments beginning on the 1^st of the month after the one-year anniversary date, subject to the employee’s continuous service with the Company. The options generally expire ten years after the date of grant. The fair value of the options at the date of grant is recognized as an expense over the requisite service period. 97,500 and 1,612,700 option awards were granted in the three and nine months ended September 30, 2018, respectively, and no option awards were granted in the three and nine months ended September 30, 2017. As of September 30, 2018, and December 31, 2017, 2,962,062 and 3,391,960 shares are reserved for issuance under the 2017 Plan, respectively.

The following table summarizes the stock option activity during the nine months ended September 30, 2018:

	Stock Option Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding, January 1, 2018		1,912,980		$	3.72		8.24	$	2,738,704
Granted		1,612,700			3.64
Exercised		(52,099	)		1.47
Expired/cancelled		(124,949	)		3.23
Outstanding, September 30, 2018		3,348,632		$	3.73		8.47	$	1,129,828
Expected to vest, September 30, 2018		2,436,229		$	4.27	9.41		$	61,555
Options exercisable, September 30, 2018		912,403		$	2.28		5.96	$	1,068,273

Aggregate intrinsic value represents the estimated fair value of the Company’s common stock at September 30, 2018, in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable.

Compensation expense for stock options was $759,978 and $53,814 for the three months ended September 30, 2018 and 2017, respectively and $2,314,201 and $173,888 for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, there was $4,568,480 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.63 years.

Restricted Stock

Shares of restricted stock generally have similar vesting terms as stock options. A summary of the Company’s restricted stock activity and related information during the nine months ended September 30, 2018 is as follows:

	Restricted Stock Shares			Weighted Average Grant Date Fair Value
Nonvested, January 1, 2018		91,576		$	2.12
Granted		60,000			4.75
Vested		(142,205	)		3.23
Forfeited		(2,333	)		2.25
Nonvested, September 30, 2018		7,038		$	2.21

The Company recognized compensation expense for restricted stock of $46,433 and $73,545 for the three months ended September 30, 2018 and 2017, respectively, and $449,689 and $220,380 for the nine months ended September 30, 2018 and 2017, respectively.

Compensation Expense Summary

The Company recognized the following compensation cost related to employee and non-employee stock-based compensation activity:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Research and development	$	139,492	$	88,443	$	313,505	$	276,778
General and administrative		666,919		38,916		2,450,385		117,490
Total	$	806,411	$	127,359	$	2,763,890	$	394,268

The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock-based awards. Option pricing and models require the input of various subjective assumptions, including the option’s expected life, expected dividend yield, price volatility and risk-free interest rate of the underlying stock. Accordingly, the weighted-average fair value of the options granted during the three and nine months ended September 30, 2018 was $2.13 and $2.24 per share, respectively. The calculation was based on the following assumptions.

	Three Months Ended	Nine Months Ended
	September 30, 2018	September 30, 2018
Expected term (years)	6.00	6.07
Risk-free interest rate	2.83%	2.85%
Expected volatility	65.12%	66.04%
Expected dividend yield	0.00%	0.00%