Note 11. Stock-Based Compensation

Equity Incentive Plans

We adopted the following stockholder-approved equity incentive plans:

The 1996 Amended Stock Incentive Plan (the "1996 Plan") authorized the issuance of up to 5,000,000 shares of our common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 1996 Plan was terminated in 2006. Options granted before termination of the 1996 Plan will continue to remain outstanding until exercised, cancelled, or expired.

The 2005 Stock Incentive Plan (the "2005 Plan"), pursuant to which we are authorized to issue up to 11,450,000 shares of common stock covering several different types of awards, including stock options, restricted shares, stock appreciation rights, performance shares, and phantom stock. The 2005 Plan will terminate on March 25, 2024.

The stock option plans provide that options may be granted at an exercise price of 100% of fair market value of our common stock on the date of grant, may be exercised in full or in installments, at the discretion of the Board or its Compensation Committee (the "Compensation Committee"), and must be exercised within ten years from date of grant. Stock options generally vest pro rata over three to five years. We recognize stock-based compensation expense on a straight-line basis over the requisite service (vesting) period based on fair values. We use historical data to estimate expected employee behaviors related to option exercises and forfeitures and included these expected forfeitures as a part of the estimate of stock-based compensation expense as of the grant date. We adjust the total amount of stock-based compensation expense recognized for each award, in the period in which each award vests, to reflect the actual forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost for an award is recognized over its vesting period.

Stock Options

The following table summarizes stock options activity for the three months ended March 31, 2016 (in thousands, except per share data):

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding at January 1, 2016		5,134		$	9.05		5.69
Granted		927		$	4.52
Exercised		-		$	-
Cancelled		(126	)	$	6.11
Expired		(62	)	$	27.66
Outstanding at March 31, 2016		5,873		$	8.20		6.26
Exercisable at March 31, 2016		4,051		$	9.46		4.91
Vested and expected to vest at March 31, 2016		5,492		$	8.39		6.03

The weighted average fair value of options granted during the three months ended March 31, 2016 and 2015 was $3.07 and $4.77 per share, respectively.

The total intrinsic value (the excess of the market price over the exercise price) was approximately $15 thousand for stock options outstanding, exercisable, and vested and expected to vest as of March 31, 2016. The total intrinsic value for stock options exercised during the three months ended March 31, 2015 was approximately $20 thousand. No stock options were exercised during the three months ended March 31, 2016.

We do not expect to realize any tax benefits from our stock option activity or the recognition of stock-based compensation expense, because we currently have net operating losses and have a full valuation allowance against our deferred tax assets. Accordingly, no amounts related to windfall tax benefits have been reported in cash flows from operations or cash flows from financing activities for the three months ended March 31, 2016 and 2015.

Stock-Based Compensation Expense

We account for stock-based awards issued to employees in accordance with the provisions of ASC 718 (Topic 718, Compensation – Stock Compensation). We recognize stock-based compensation expense on a straight-line uniform basis over the service period of the award, which is generally three to five years. Stock-based awards issued to consultants are accounted for in accordance with the provisions of ASC 718 and ASC 505-50 (Subtopic 50 "Equity-Based Payments to Non-Employees" of Topic 505, Equity). Options granted to consultants are periodically revalued as the options vest, and are recognized as an expense over the related period of service or the vesting period, whichever is longer. Under the provisions of ASC 718, members of the Board are considered employees for calculation of stock-based compensation expense.

We estimated the fair value of the stock options granted on the date of grant using a Black-Scholes valuation model that used the weighted average assumptions noted in the following table. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. The expected life (estimated period of time that we expect employees, directors, and consultants to hold their stock options) was estimated based on historical rates for three group classifications, (i) employees, (ii) outside directors and officers, and (iii) consultants. Expected volatility was based on historical volatility of our stock price for a period equal to the stock option's expected life and calculated on a daily basis. The expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

	Three Months Ended March 31,
	2016		2015
Risk-free interest rate		1.55%		1.91%
Expected life (in years)		6.71		6.71
Expected volatility		75%		81%
Expected dividend yield		-		-

Stock-based compensation expense for the three months ended March 31, 2016 and 2015 was recorded in our condensed consolidated statement of operations as follows (in thousands):

	Three Months Ended March 31,
	2016		2015
Research and development expenses	$	275	$	390
General and administrative expenses		301		367
Total stock-based compensation expense	$	576	$	757

At March 31, 2016, unrecognized stock-based compensation expense related to stock options was approximately $4.8 million and is expected to be recognized over a weighted average period of approximately 2.9 years.