8. Stock-Based Compensation

The Company’s 2013 Stock Incentive Plan (Stock Incentive Plan) provides for the issuance of long-term incentive awards, or awards, in the form of non-qualified and incentive stock options, stock appreciation rights, stock grants and restricted stock units. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. Stock options expire no later than ten years from the date of grant and generally vest and become exercisable over a four-year period following the date of grant. Every non-employee member of the Company’s Board of Directors may also receive an annual non-qualified stock option or restricted stock unit grant. Upon the exercise of stock options, the Company issues the resulting shares from shares reserved for issuance under the Stock Incentive Plan.

Stock-based compensation expense is reduced by an estimated forfeiture rate derived from historical employee termination behavior. If the actual number of forfeitures differs from the Company’s estimates, the Company may record adjustments to increase or decrease compensation expense in future periods.

The estimated grant-date fair value of the Company’s stock-based awards is amortized ratably over the awards’ service periods. Stock-based compensation expense recognized was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Research and development	$	29,000	$	38,000	$	88,000	$	116,000
General and administrative		116,000		209,000		161,000		598,000
Severance charge		4,000		1,161,000		4,000		1,161,000
Total stock-based compensation	$	149,000	$	1,408,000	$	253,000	$	1,875,000

The following table summarizes stock option activity for the nine months ended September 30, 2015:



			Options Outstanding
							Average
					Weighted		Remaining
	Shares				Average		Contractual
	Available				Exercise		Term		Intrinsic
	For Grant		Shares		Price		(Years)		Value
Balance, December 31, 2014		785,000		440,695	$	9.37		8.18	$	640,837
Increase in authorized shares		520,000
Granted		(547,181)		547,181		8.72		-		-
Exercised		-		(214,815)		8.00		-		(383,994)
Forfeited		4,812		(4,812)		13.64		-		-
Expired		-		(137,123)		10.19		-		-
Balance, September 30, 2015		762,631		631,126	$	9.06		9.38	$	256,843
Vested or expected to vest at September 30, 2015				499,995	$	9.05		9.26	$	-
Exercisable at September 30, 2015				66,205	$	11.45		5.98	$	-

The intrinsic value of options exercisable as of September 30, 2015 was $0.0 million, based on the Company’s closing stock price of $3.95 per share and a weighted average exercise price of $11.45 per share.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of standard stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s common stock, assumptions related to the expected price volatility of the Company’s common stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s common stock. The Company uses Monte Carlo valuation models to estimate the fair value of certain stock options with market-based vesting requirements. This method of option pricing involves the use of inputs such as the market value of the Company’s common stock, stock price volatility, the period during which the options will be outstanding, the rate of return on risk-free investments, expected dividend yield for the Company’s stock, and certain estimates of future value of the Company’s common stock.

During the third quarter of 2015, the Company issued 547,181 common stock options to its executives and board members with an average exercise price $8.72 per share. Included in this amount were 399,716 stock options, with an exercise price of $9.45, to its Chief Executive Officer, pursuant to his employment agreement dated April 24, 2015.

As of September 30, 2015, there was $4.4 million of total unrecognized compensation expense related to unvested stock options that will be recognized over the weighted average remaining period of 1.98 years.

Shares Reserved For Further Issuance

As of September 30, 2015, the Company had reserved shares of its common stock for future issuance as follows:



	Shares Reserved
Stock options outstanding		631,126
Available for future grants under the Stock Incentive Plan		762,631
Warrants		1,209,681
Total shares reserved		2,603,438