NOTE 10 – Stock-Based Compensation

NeuroOne formally adopted an equity incentive plan (“the 2016 Plan”) on October 27, 2016 which was subsequently adopted by the Company upon completion of the Acquisition. In addition, the Company adopted a 2017 Equity Incentive Plan (the “2017 Plan”) on April 17, 2017. The 2016 and 2017 Plans provide for the issuance of restricted shares and stock options to employees, directors, and consultants of the Company. The Company reserved 2,292,265 shares of common stock (as adjusted for the exchange ratio in connection with the Acquisition) for issuance under the 2016 and 2017 Plans on a combined basis. The Company began granting stock options and restricted stock awards in the second quarter of 2017, under the 2016 Plan. During the three month periods ended March 31, 2018 and 2017, no stock options or restricted stock award grants were formally issued. See stock-based award liability section below for stock-based award grants committed, but not formally issued as of March 31, 2018.

During the three months ended March 31, 2018 and 2017, there was no vesting of formally issued stock options or restricted stock awards. No stock options were forfeited during the three months ended March 31, 2018 and 2017. As of March 31, 2018, 1,711,096 shares were available for future issuance on a combined basis under the 2016 and 2017 Plans.

There was no unrecognized stock-based compensation cost for stock options and restricted common stock as of March 31, 2018.

Stock-Based Award Liabilities

As of March 31, 2018, the Company had a formal obligation to issue future restricted common stock and common stock options relating to two consulting agreements. The estimated liability associated with the vested portions of these awards was recorded in accrued expenses in the accompanying condensed consolidated balance sheets as of March 31, 2018. The corresponding stock-based services expense related to the stock-based award liability was included in general and administrative and research and development costs as follows in the accompanying condensed statements of operations:

	Three Months Ended
	March 31, 2018
General and administrative	$	252,000
Research and development		2,437
Total stock-based compensation	$	254,437

A total of up to 250,000 shares of common stock was committed as a result of one consulting agreement for investor relation services executed in February 2018, but none of the underlying shares of common stock were issued as of March 31, 2018. The portion of the stock award that had met performance vesting conditions as of March 31, 2018 amounted to 100,000 common shares and were issued on April 26, 2018. The amount of compensation expense totaling $252,000 related to the vested common shares was based on the fair value of the underlying common stock at point of vesting which was $2.52 per share on a non-marketable basis. The common stock fair value was according to a separate independent third-party valuation analysis since there was no active trading market for the Company’s common stock. The remaining 150,000 shares of the stock award will vest and be issued in 50,000 share quarterly tranches beginning in May 2018. The first 50,000 tranche of shares was issued on May 7, 2018.

Additionally, the Company recorded stock-based services expense related to unissued stock options associated with a second consulting agreement whereby the number of option shares and pricing will not be set until the occurrence of the award date which is defined as the earlier to occur of a public offering, qualified financing, or June 30, 2018. The number of option shares under the agreement is based on a $3,000 monthly compensation amount divided by the fair value of the underlying common stock on the award date. The exercise price will also be set at the fair value of the underlying common stock on the award date. The liability associated with the unissued options was based on an option share equivalent estimate that reflects the portion of the award where performance vesting conditions have been met as of March 31, 2018 and was based on the fair value of the Company’s common stock on March 31, 2018 as the award date has not occurred. The common stock fair value on March 31, 2018 was $2.30 per share and was determined based on a separate independent third-party valuation analysis since there was no active trading market for the Company’s common stock.

The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock- option liability during the three month periods ended March 31, 2018:

	2018

Expected stock price volatility		47.8	%
Expected life of options (years)		5
Expected dividend yield		0	%
Risk free interest rate		2.6	%

Upon the issuance of all of the unissued options associated with the stock-based award liabilities, the estimated number of shares available for future issuance as of March 31, 2018 would be reduced from 1,711,096 shares to 1,704,574 as a result of the potential stock option issuance under the second consulting agreement. The 250,000 shares of common stock issuable under the February 2018 consulting agreement were not eligible for issuance under either of the 2016 or 2017 Plans as the consulting contract was not with an individual. See Note 12 - Stockholders’ Deficit for additional information.