STOCK OPTIONS

12 Months Ended

Dec. 31, 2013

Notes to Financial Statements

Note 11. STOCK OPTIONS

For options issued and outstanding during the years ended December 31, 2013, 2012 and 2011, the Company recorded additional paid-in capital and non-cash compensation expense of $714,547, $938,537 and $836,866, respectively, each net of estimated forfeitures.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the consolidated financial statements, to estimate option exercise and employee termination within the valuation model. The expected term of options granted under the Company’s stock plans, all of which qualify as “plain vanilla,” is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months) as permitted under SEC Staff Accounting Bulletin Nos. 107 and 110. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. Restricted stock grants are valued based on the closing market price for the Company’s Common Stock on the grant date.

The assumptions used principally for options granted to employees in the years ended December 31, 2013 and 2012 were as follows:

	2013			2012
Risk-free interest rate		0.10% - 2.71	%		0.92% - 2.05	%
Expected dividend yield		—			—
Expected term	1-10 years			6.5 years
Forfeiture rate (excluding fully vested options)		15	%		15	%
Expected volatility		129% - 141	%		131% - 142	%

A summary of option activity under the Company’s stock plans and options granted to officers of the Company outside any plan as of December 31, 2013 and changes during the year then ended is presented below:

Stock Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2013		343,334		$	14.75
Granted		1,264,432			3.05
Exercised		—			—
Forfeited or expired		(152,334	)		11.72
Outstanding at December 31, 2013		1,455,432		$	4.90	3.99 years	$	81,085
Exercisable at December 31, 2013		230,842		$	11.37	3.99 years	$	81,085

The weighted-average grant-date fair value of options granted during the year ended December 31, 2013 was $3.05 per share. As of December 31, 2013, there was approximately $891,000 of total unrecognized compensation expense related to non-vested share-based option arrangements. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to United States Food and Drug Administration (FDA) approval for Symphony or the sale of the Company, unrecognized compensation is expected to be recognized over the next 12 months.