Note

. 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, and must be exercised within

ten

years from date of grant. Stock options generally vest pro rata over

three

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, 2018 (

in thousands, except per share data or as otherwise noted):

						Weighted
				Weighted		Average
	Number			Average		Remaining
	of Shares			Exercise Price		Contractual Life
Outstanding at January 1, 2018		5,535		$	7.25		6.04
Granted		1,313		$	6.61
Exercised		-			N/A
Cancelled		(24	)	$	8.78
Expired		(3	)	$	18.03
Outstanding at March 31, 2018		6,821		$	7.12		6.57
Exercisable at March 31, 2018		4,349		$	6.88		5.04
Vested and expected to vest at March 31, 2018		6,181		$	7.08		6.28

The weighted-average fair value of options granted during the

three

months ended

March 31, 2018

and

2017

was

$4.34

and

$7.60

per share, respectively.

The total intrinsic value (the excess of the market price over the exercise price) was approximately

$8.3

million for stock options outstanding,

$6.2

million for stock options exercisable, and

$7.8

million for stock options vested and expected to vest as of

March 31, 2018.

The total intrinsic value for stock options exercised during the

three

months ended

March 31, 2017

was approximately

$167

thousand.

stock options were exercised during the

three

months ended

March 31, 2018.

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 basis over the service period of the award, which is generally

three

five

years. Stock-based awards issued to consultants are accounted for in accordance with the provisions of ASC

718

and ASC

505

(Subtopic

“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,
	2018		2017
Risk-free interest rate		2.68%		2.22%
Expected life (in years)		6.66		6.73
Expected volatility		69%		72%
Expected dividend yield		--		--

Stock-based compensation expense for the

three

months ended

March 31, 2018

and

2017

was recorded in our condensed consolidated statement of operations as follows (in thousands):

	Three Months Ended
	March 31,
	2018		2017
Research and development expenses	$	525	$	235
General and administrative expenses		523		368
Total stock-based compensation expense	$	1,048	$	603

March 31, 2018,

unrecognized stock-based compensation expense related to stock options was approximately

$8.8

million and is expected to be recognized over a weighted-average period of approximately

2.6

years.