7. Common Stock

12 Months Ended

Dec. 31, 2018

Equity [Abstract]

Common Stock

In connection with a loan in 2015, the Company issued a warrant entitling the holder to purchase up to 300,000 shares of the Company’s common stock at a price per share of $2.00. The warrant expires July 1, 2020, per the anti-dilution provisions of the warrant, the warrant, since January 2017, entitles the holder to purchase 1.2 million shares of the Company’s common stock at a price of $.50 per share.

During 2016 and 2017, the Company issued Notes in the aggregate principal amount of $2.4 million convertible to common stock within three years at the rate of $.50 per share and Warrants to purchase up to 2.4 million shares of the Company’s common stock at $1.00 per share. During 2018, holders of $400,000 Notes were converted to 800,000 shares of common stock. In January 2019, one of the holders of the Notes converted a Note for $50,000 into 100,000 shares of Noble Roman’s common stock.

The Company has an incentive stock option plan for key employees, officers and directors. The options are generally exercisable three years after the date of grant and expire ten years after the date of grant. The option prices are the fair market value of the stock at the date of grant. At December 31, 2018, the Company had the following employee stock options outstanding:

# Common Shares Issuable		Exercise Price
	46,500	$	.58
	155,000		.58
	1,400,000		.58
	31,000		.58
	143,667		.58
	227,500		1.00
	252,500		1.00
	312,500		1.00
	300,000		.53
	35,000		.50
	395,000		.51
	345,000		.623

As of December 31, 2018, options for 2,782,000 shares were exercisable.

The Company adopted the modified prospective method to account for stock option grants, which does not require restatement of prior periods. Under the modified prospective method, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption, net of an estimate of expected forfeitures. Compensation expense is based on the estimated fair values of stock options determined on the date of grant and is recognized over the related vesting period, net of an estimate of expected forfeitures which is based on historical forfeitures.

The Company estimates the fair value of its option awards on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on external data while all other assumptions are determined based on the Company’s historical experience with stock options. The following assumptions were used for grants in 2016, 2017 and 2018:

Expected volatility                                                       30% to 20%

Expected dividend yield                                                    None

Expected term (in years)                                                     3

Risk-free interest rate                                               1.4% to 2.82%

The following table sets forth the number of options outstanding as of December 31, 2015, 2016, 2017 and 2018 and the number of options granted, exercised or forfeited during the years ended December 31, 2016, 2017 and 2018:

Balance of employee stock options outstanding as of 12/31/15	2,657,667
Stock options granted during the year ended 12/31/16	395,000
Stock options exercised during the year ended 12/31/16	(20,000)
Stock options forfeited during the year ended 12/31/16	(75,000)
Balance of employee stock options outstanding as of 12/31/16	2,957,667
Stock options granted during the year ended 12/31/17	410,500
Stock options exercised during the year ended 12/31/17	0
Stock options forfeited during the year ended 12/31/17	(34,000)
Balance of employee stock options outstanding as of 12/31/17	3,334,167
Stock options granted during the year ended 12/31/18	415,000
Stock options exercised during the year ended 12/31/18	0
Stock options forfeited during the year ended 12/31/18	(105,500)
Balance of employee stock options outstanding as of 12/31/18	3,643,667

The following table sets forth the number of non-vested options outstanding as of December 31, 2015, 2016, 2017 and 2018, and the number of stock options granted, vested and forfeited during the years ended December 31, 2016, 2017 and 2018.

Balance of employee non-vested stock options outstanding as of 12/31/15	730,501
Stock options granted during the year ended 12/31/16	395,000
Stock options vested during the year ended 12/31/16	(258,833)
Stock options forfeited during the year ended 12/31/16	(75,000)
Balance of employee non-vested stock options outstanding as of 12/31/16	791,668
Stock options granted during the year ended 12/31/17	410,500
Stock options vested during the year ended 12/31/17	(418,333)
Stock options forfeited during the year ended 12/31/17	(34,000)
Balance of employee non-vested stock options outstanding as of 12/31/17	749,835
Stock options granted during the year ended 12/31/18	415,000
Stock options vested during the year ended 12/31/18	(337,499)
Stock options forfeited during the year ended 12/31/18	(105,500)
Balance of employee non-vested stock options outstanding as of 12/31/18	721,836

During 2018, employee stock options were granted for 415,000 shares, and options for 102,500 shares were forfeited. At December 31, 2018, the weighted average grant date fair value of non-vested options was $.558 per share and the weighted average grant date fair value of vested options was $.70 per share. The weighted average grant date fair value of employee stock options granted during 2016 was $.53, during 2017 was $.51 and during 2018 was $.623. Total compensation cost recognized for share-based payment arrangements was $14,295 with a tax benefit of $5,497 in 2016, $14,588 with a tax benefit of $5,808 in 2017 and $16,597 with a tax benefit of $3,983 in 2018. As of December 31, 2018, total unamortized compensation cost related to options was $27,925, which will be recognized as compensation cost over the next six to 36 months. No cash was used to settle equity instruments under share-based payment arrangements.