STOCK OPTIONS

9 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 10. STOCK OPTIONS

The fair value of each award of an option to purchase Common Stock (collectively, “Stock Options”) is estimated on the date of grant using the Black-Scholes-Merton option pricing model with certain assumptions noted below.  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 financial statements, to estimate option exercise and employee termination and forfeitures within the valuation model.  The expected term of Stock Options granted under the Company’s stock plans is based on the average of the contractual term (generally 10 years) and the vesting period (generally 12 to 42 months).  The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

For Stock Options issued and outstanding during the nine month period ended September 30, 2014 and 2013, the Company recorded adjustments to paid-in capital and non-cash compensation expense of $708,000 and $554,000, respectively, each net of estimated forfeitures.

The assumptions used principally for Stock Options granted to employees and members of the Company’s Board of Directors in the nine months ended September 30, 2014 and 2013 were as follows:

	2014			2013
Risk-free interest rate		1.75% – 2.08	%		0.13% - 1.89	%
Expected dividend yield		—			—
Expected term	5.5 - 6.5 years			1.0 - 6.5 years
Forfeiture rate (excluding fully vested Stock Options)		15	%		15	%
Expected volatility		120% - 141	%		129% - 141	%

A summary of Stock Option activity as of and for the nine months ended September 30, 2014 is as follows:

Stock Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding options at January 1, 2014		1,455,432		$	4.90
Granted		187,950		$	3.08
Exercised		—		$	—
Forfeited or expired		(905,228	)	$	4.19
Outstanding options at September 30, 2014		738,154		$	5.32	7.66 years	$	—
Exercisable options at September 30, 2014		328,422		$	8.02	5.75 years	$	—

The weighted-average grant-date fair value of Stock Options granted during the nine months ended September 30, 2014 was $3.08 per share.  As of September 30, 2014, there was approximately $602,000 of total unrecognized compensation expense related to non-vested share-based Stock Option compensation 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 FDA approval for Symphony or the sale of substantially all of the stock or assets of the Company, unrecognized compensation is expected to be recognized over the next 5.25 years.