5.	Stock-Based Compensation

Stock Incentive Plan

During 2001, the Company’s Board of Directors and stockholders adopted the 2001 Stock Incentive Plan (the “2001 Stock Plan”). The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2001 Stock Plan shall not exceed 250,000. All awards pursuant to the 2001 Stock Plan shall terminate upon the termination of the grantee’s employment for any reason. Awards include options, restricted shares, stock appreciation rights, performance shares and cash-based awards (the “Awards”). The 2001 Stock Plan contains certain anti-dilution provisions in the event of a stock split, stock dividend or other capital adjustment, as defined in the plan. The 2001 Stock Plan provides for a Committee of the Board to grant Awards and to determine the exercise price, vesting term, expiration date and all other terms and conditions of the Awards, including acceleration of the vesting of an Award at any time. As of June 30, 2014, there were 682,449 options issued and outstanding under the 2001 Stock Plan.

On March 20, 2007, the Company’s Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 2,500,000 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. This plan was approved by stockholders on November 2, 2007. The exercise price of stock options under the 2007 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 plan shall not exceed 250,000. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of June 30, 2014, there were 428,657 options issued and outstanding under the 2007 Stock Plan.

On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 3,000,000 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. On October 22, 2013, the stockholders approved and adopted an amendment to the Company’s 2010 Incentive Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the Plan from 3,000,000 to 6,000,000. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of June 30, 2014, there were 4,220,000 options issued and outstanding under the 2010 Stock Plan.

In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. There is no deferred compensation recorded upon initial grant date, instead, the fair value of the stock-based payment is recognized ratably over the stated vesting period.

The Company has applied fair value accounting for all share based payment awards since inception. The fair value of each option or warrant granted is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes assumptions used in the three and six months ended June 30, 2014 and 2013 are as follows:

	Three Months Ended June 30,			Six Months Ended June 30,
	2014		2013	2014			2013
Exercise price	$2.52 - $2.91		-	$2.52 - $2.91		$	1.74
Expected dividends	0	%	-	0	%		0	%
Expected volatility	106% - 150%		-	106% - 150%			148	%
Risk free interest rate	1.73% - 2.73%		-	1.57% - 2.73%			0.77	%
Expected life of option	5 years – 10 years		-	5 years – 10 years			5 years
Expected forfeitures	0	%	-	0	%		0	%

The Company records stock-based compensation based upon the stated vested provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:

immediate vesting,

half vesting immediately and remaining over three years,

quarterly over three years,

annually over three years,

one-third immediate vesting and remaining annually over two years,

one half immediate vesting and remaining over nine months,

one quarter immediate vesting and remaining over three years,

one quarter immediate vesting and remaining over 33 months; and

monthly over three years.

During the six months ended June 30, 2014, the Company granted 1,732,500 options to employees, Board members and consultants having an approximate fair value of $4.1 million based upon the Black-Scholes option pricing model. During the same period in 2013, the Company granted 117,500 options to employees and consultants having an approximate fair value of $185,000 based upon the Black-Scholes option pricing model.

A summary of stock option activities as of June 30, 2014, and for the year ended December 31, 2013, is as follows:

					Weighted
					Average
			Weighted		Remaining		Aggregate
			Average Exercise		Contractual		Intrinsic
	Options		Price		Life		Value

Balance - December 31, 2012		4,453,746	$	1.78		6.43 years	$	1,308,000
Granted		222,500	$	1.69
Exercised		(291,666)	$	0.79
Forfeited		(475,000)	$	2.30

Balance - December 31, 2013		3,909,580	$	1.78		5.59 years	$	785,000
Granted		1,732,500	$	2.63
Exercised		(6,583)	$	0.58
Forfeited		(304,391)	$	1.93

Balance – June 30, 2014 - outstanding		5,331,106	$	2.05		6.26 years	$	920,000

Balance – June 30, 2014 - exercisable		3,340,280	$	1.77		5.36 years	$	919,000
Grant date fair value of options granted – June 30, 2014			$	4,088,000

Weighted average grant date fair value – June 30, 2014			$	2.36
Grant date fair value of options granted – December 31, 2013			$	350,000

Weighted average grant date fair value – December 31, 2013			$	1.57

Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to employees and consultants for the three months ended June 30, 2014 and 2013 was $855,000 and $407,000, respectively and $1,217,000 and $864,000 for the six month periods ended June 30, 2014 and 2013, respectively.

As of June 30, 2014, total unrecognized stock-based compensation expense related to stock options was $4.5 million, which is expected to be expensed through April 2017.