8. Stock-Based Compensation

Pursuant to the Merger (Note 1), the Company assumed each option to purchase Aerpio common stock that remained outstanding under the Aerpio Therapeutics, Inc. 2011 Equity Incentive Plan (the “Plan”), whether vested or unvested, and converted it into an option to purchase such number of shares of the Company’s common stock equal to the number of shares of Aerpio common stock subject to the option immediately prior to the Merger, divided by the applicable Merger exchange rate of 2.3336572, with any fraction rounded down to the nearest whole number. The exercise price per share of each assumed option is equal to the exercise price of the Aerpio option prior to the assumption, multiplied by the applicable Merger exchange rate of 2.3336572, rounded up to the nearest whole cent. The terms of the 2011 Plan continue to govern the options covering an aggregate of 898,692 shares of the Company’s common stock at June 30, 2017 and December 31, 2016, subject to awards assumed by the Company, except that all references in the 2011 Plan to Aerpio, will now be the Company. In addition, each unvested share of Aerpio restricted common stock issued under the 2011 Plan that was outstanding immediately prior to the effective time of the Merger, was converted by virtue of the Merger into restricted common stock of the Company, equal to the number of shares of Aerpio common stock subject to the unvested shares of Aerpio restricted common stock immediately prior to the Merger divided by the applicable Merger exchange rate of 2.3336572, with any fraction rounded down to the nearest whole number.

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. No awards were granted under the 2017 Plan as of June 30, 2017.

Stock Options

The options granted generally vest over 48 months. For employees with less than one year’s service, options vest in installments of 25% at the one-year anniversary and thereafter in 36 equal monthly installments beginning in the 13th month after the initial Vesting Commencement Date (as defined), subject to the employee’s continuous service with the Company. Options granted to other employees vest in 48 equal monthly installments after the initial Vesting Commencement 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. No option awards were granted in the six months ended June 30, 2017 and one option award was granted for 50,228 shares in the six months ended June 30, 2016.

The following table summarizes the stock option activity during the six-months ended June 30, 2017:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding, January 1, 2017		927,592		$	1.70		7.48	$	1,030,217
Granted		—			—
Exercised		(25,729	)		1.40
Expired/cancelled		(2,901	)		2.11
Outstanding, June 30, 2017		898,962		$	1.70	6.87		$	2,963,449
Expected to vest, June 30, 2017		231,733		$	1.80	7.91			742,130
Options exercisable, June 30, 2017		667,229		$	1.67		6.50	$	2,221,319

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

Compensation expense for stock options was $38,954 and $42,225 for the three months ended June 30, 2017 and 2016, respectively and $120,075 and $85,041 for the six months ended June 30, 2017 and 2016 respectively. As of June 30, 2017, there was $226,405 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.0 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 six months ended June 30, 2017 is as follows:

	Shares			Weighted Average Grant Date Fair Value
Nonvested, January 1, 2017		241,096		$	1.91
Granted		—			—
Vested		(67,126	)	$	1.77
Forfeited		(5,246	)	$	2.20
Nonvested, June 30, 2017		168,724		$	1.94

The Company recognized compensation expense for restricted stock of $72,570 and $77,325 for the three months ended June 30, 2017 and 2016, respectively, and $146,834 and 159,724 for the six months ended June 30, 2017 and 2016 respectively. As of June 30, 2017, there was $288,016 of unrecognized compensation cost related to these restricted stock grants, which is expected to be recognized over a weighted average period of 1.2 years.

Compensation Expense Summary

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

	Three Months Ended June 30				Six Months Ended June 30
	2017		2016		2017		2016
Research and development	$	73,033	$	74,944	$	188,335	$	156,677
General and administrative		38,491		44,606		78,574		88,088
Total	$	111,524	$	119,550	$	266,909	$	244,765

The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock-based awards. Option pricing 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 six months ended June 30, 2016 was $1.22. The calculation was based on the following assumptions.

	Three Months Ended		Six Months Ended
	June 30, 2016		June 30, 2016
Expected term (years)		6.00		6.00
Risk-free interest rate		1.39%		1.39%
Expected volatility		78.00%		78.00%
Expected dividend yield		0.00%		0.00%