9.	STOCK INCENTIVE PLAN

The Company has three incentive plans. One was adopted in 2004 (2004 Plan) and provided for the granting of stock options and restricted stock awards and generally prescribed a contractual term of seven years. The 2004 Plan terminated in August 2010. However, grants made under the 2004 Plan are still governed by that plan. As of December 31, 2016, options to purchase 23,954 shares of common stock at a weighted average exercise price of $3.24 per share remained outstanding under the 2004 Plan.

The Company approved the 2010 Employee, Director and Consultant Equity Incentive Plan (2010 Plan) in September 2010 to replace the 2004 Plan. The 2010 Plan provided for the granting of stock options and restricted stock awards. The 2010 Plan terminated upon the Initial Public Offering. However, grants made under the 2010 Plan are still governed by that plan. As of December 31, 2016, options to purchase 489,846 shares of common stock at a weighted average exercise price of $1.58 per share remained outstanding under the 2010 Plan.

The Company approved the 2013 Equity Incentive Plan (2013 Plan) in October 2013. The 2013 Plan became effective immediately on adoption although no awards were to be made under it until the effective date of the Registration Statement for the Initial Public Offering. The 2013 Plan provides for the granting of stock options, restricted stock, stock appreciation rights, stock units, and performance cash awards to certain employees, members of the board of directors and consultants of the Company. As of December 31, 2015, the number of shares of common stock authorized for issuance in connection with the 2013 Plan was 847,614. On January 1 of each year the aggregate number of common shares that may be issued under the Plan shall automatically increase. As of January 1, 2016, the number of shares of common stock that may be issued under the 2013 Plan was automatically increased by 333,333 shares. In June 2016, the 2013 Plan was amended to provide an increase of 700,000 shares of common stock authorized for issuance increasing the number of shares of common stock available for issuance under the 2013 Plan to 1,880,950 shares and that the annual increase would equal a number of shares equal to the least of (a) 7% of the total number of common shares outstanding on the last calendar day of the prior fiscal year, (b) subject to adjustment for certain corporate transactions, 1,000,000 common shares, or (c) a number of common shares determined by the Company’s board of directors. As of December 31, 2016, options to purchase 984,786 shares of common stock at a weighted average exercise price of $6.18 per share and restricted stock units of 27,096 remained outstanding under the 2013 Plan. As of December 31, 2016, there were 869,068 shares of common stock available for grant under the 2013 Plan. As of January 1, 2017, the number of shares of common stock that may be issued under the 2013 Plan was automatically increased by 880,343 shares, increasing the number of shares of common stock available for issuance under the 2013 Plan to 2,761,293.

Terms of stock award agreements, including vesting requirements, are determined by the board of directors, subject to the provisions of the respective plan they were granted. Options granted by the Company typically vest over a four year period. Certain of the options are subject to acceleration of vesting in the event of certain change of control transactions. The options may be granted for a term of up to ten years from the date of grant. The exercise price for options granted under the 2013 Plan must be at a price no less than 100% of the fair market value of a common share on the date of grant.

The Company recognizes stock-based compensation expense over the requisite service period. The Company’s share-based awards are accounted for as equity instruments. The amounts included in the consolidated statements of operations relating to stock-based compensation are as follows:


	Year ended December 31,
	2016		2015
Research and development expenses	$	1,167,142	$	841,289
General and administrative expenses		1,592,611		1,345,813

Total stock-based compensation expense	$	2,759,753	$	2,187,102

The following table summarizes option activity under the incentive plans for the years ended December 31, 2016 and 2015:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value(a)
Outstanding at December 31, 2015		1,077,330		$	3.98
Granted		759,314			5.43
Cancelled		(63,096	)		4.85
Forfeited		(171,159	)		6.30
Exercised		(103,804	)		0.88				463,604

Outstanding at December 31, 2016		1,498,585		$	4.63		7.86	$	2,185,696

Exercisable at December 31, 2016		802,532		$	2.34		7.10	$	1,874,659

(a)

The aggregate intrinsic value in this table was calculated on the positive difference, if any, between the closing market value of our common stock on December 31, 2016 of $5.35 and the price of the underlying options.

The Company records stock-based compensation related to stock options granted at fair value. During the years ended December 31, 2016 and 2015, the Company used the Black-Scholes option-pricing model to estimate the fair value of stock option grants and to determine the related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates. The weighted-average fair value of options granted was $ 5.43 and $7.78 for the years ended December 31, 2016 and 2015, respectively. The assumptions used in determining fair value of the employee stock options for the years ended December 2016 and 2015, are as follows:


	December 31, 2016			December 31, 2015
Expected dividend yield		0	%		0	%
Anticipated volatility		88.57	%		88.57	%
Estimated stock price	$	3.94 - $7.48		$	7.19 - $8.37
Exercise price	$	3.94 - $7.48		$	7.19 - $8.37
Expected life (years)		5.50 - 6.25			5.50 - 6.25
Risk free interest rate		0.59% - 2.20	%		0.27% - 1.91	%

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based on the historical volatility of a group of similar companies. The Company has also computed the historical volatility of the Company’s historical information regarding the volatility of its stock price and has determined that a volatility estimate of 89% is reasonable. The Company has estimated the expected life of our employee stock options using the “simplified” method, whereby, the expected life equals the average of the vesting term and the original contractual term of the option for service-based awards since the Company doesn’t have sufficient historical or implied data of its own. The risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon United States Treasury securities.

At December 31, 2016, there is approximately $3.2 million of unrecognized compensation cost relating to stock options outstanding, which the Company expects to recognize over a weighted average period 2.11 years. Total unrecognized compensation cost will be adjusted for future forfeitures, if necessary.

Restricted Stock Units

Restricted stock units are not included in issued and outstanding common stock until the shares are vested and released. During the year ended December 31, 2016, the Company granted a restricted stock unit award for 27,096 underlying shares of common stock with a weighted-average grant date fair value of $6.33 per share. As of December 31, 2016, the outstanding restricted stock units had unamortized stock-based compensation of $134,281 with a weighted-average remaining recognition period of 3.33 years and no aggregate intrinsic value.

Employee Stock Purchase Plan

In March 2016, the Company’s Board of Directors approved the 2016 Employee Stock Purchase Plan (2016 ESPP), which became effective in June 2016 following the approval of the Company’s stockholders. The 2016 ESPP authorizes the initial issuance of up to a total of 97,500 shares of the Company’s common stock to participating employees. The number of shares reserved for issuance under the 2016 ESPP automatically increases on the first business day of each fiscal year, commencing in 2017, by a number equal to the lesser of (i) 1% of the shares of common stock outstanding on the last business day of the prior fiscal year; or (ii) the number of shares determined by the Company’s Board of Directors. Unless otherwise determined by the administrator of the 2016 ESPP, two offering periods of six months’ duration will begin each year on January 1 and July 1. As of December 31, 2016, there was no activity under the 2016 ESPP. On January 1, 2017, the number of shares available for issuance under the 2016 ESPP was automatically increased by 125,763 shares, increasing the number of shares of common stock available for issuance under the 2016 ESPP to 223,263.