9. Stock-Based Compensation

The Company’s 2013 Stock Incentive Plan (Stock Incentive Plan) provides for the issuance of incentive 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 or to a subsidiary of 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 typically become exercisable over a four-year period following the date of grant. Upon the exercise of stock options, the Company issues the resulting shares from shares reserved for issuance under the Stock Incentive Plan.

The Company accounts for stock options and restricted stock units related to its stock incentive plans under the provisions of ASC 718, which requires the recognition of the fair value of stock-based compensation. The fair value of stock options was estimated using a Black-Scholes option valuation model. This model requires the input of subjective assumptions in implementing ASC 718, including expected dividend, expected life, expected volatility and forfeiture rate of each award, as well as the prevailing risk-free interest rate and the fair value of the underlying common stock on the date of grant. The fair value of equity-based awards is amortized over the vesting period of the award, and the Company has elected to use the straight-line method of amortization. The assumptions used in the Black-Scholes option valuation model for the three months ended March 31, 2016 are set forth below.


		Expected Dividend: The Company does not anticipate paying any dividends on its common stock.
		Expected Life: The expected life represents the period that the Company expects its stock-based awards to be outstanding. The Company’s expected life assumption was based on the simplified method set forth in the SEC Staff Accounting Bulletin 110. The Company’s estimation of the expected life for stock options granted to parties other than employees or directors is the contractual term of the option award.
		Expected Volatility: Expected volatility is the measure by which the Company’s stock price is expected to fluctuate during the expected term of an option. The Company’s expected volatility represents the weighted average historical volatility of the shares of its common stock.
		Risk-Free Interest Rate: The Company bases the risk-free interest rate used on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Where the expected term of its stock-based awards does not correspond with the terms for which interest rates are quoted, the Company performs a straight-line interpolation to determine the rate from the available term maturities.
		Forfeiture Rate: The Company applies an estimated forfeiture rate that is derived from historical forfeited shares. If the actual number of forfeitures differs from our estimates, the Company may record additional adjustments to compensation expense in future periods.

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the stock option grants were as follows:



	March 31,
	2016
Risk-free interest rate	1.58 to 1.63	%
Expected volatility	113.0	%
Expected term (in years)	6.0
Expected dividend yield	0.0	%

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 March 31,
	2016		2015
	(Unaudited)		(Unaudited)
Research and development	$	26,000	$	29,000
General and administrative		790,000		23,000
Total stock-based compensation	$	816,000	$	52,000

The following table summarizes stock option activity for the three months ended March 31, 2016:



			Options Outstanding
							Average
					Weighted		Remaining
	Shares				Average		Contractual
	Available				Exercise		Term		Intrinsic
	For Grant		Shares		Price		(Years)		Value
Balance, December 31, 2015		723,431		669,769	$	8.68		9.29	$	-
Granted		(207,208)		207,208		2.83		-		-
Exercised		-		-		-		-		-
Forfeited		-		-		-		-		-
Expired		-		(4,000)		10.00		-		-
Balance, March 31, 2016		516,223		872,977	$	7.29		9.26	$	229,076
Vested or expected to vest at March 31, 2016				704,778	$	7.63		9.18	$	141,846
Exercisable at March 31, 2016				99,394	$	9.19		7.69	$	-

The intrinsic value of options exercisable as of March 31, 2016 was $0.0, based on the Company’s closing stock price of $3.94 per share and a weighted average exercise price of $9.19 per share.

During the first quarter of 2016, the Company issued 207,208 common stock options to its employees and an executive with an average exercise price $2.83 per share. Included in this amount were 99,919 stock options, with an exercise price of $2.85, to its Chief Financial Officer, pursuant to his employment agreement dated January 18, 2016. There were no grants of stock options to employees or directors during the three months ended March 31, 2015.

As of March 31, 2016, there was $2.8 million of total unrecognized compensation expense related to unvested stock options, which the Company expects to recognize over the weighted average remaining period of 2.72 years.

Shares Reserved For Further Issuance

As of March 31, 2016, the Company had reserved shares of its common stock for future issuance as follows:



	Shares Reserved
Stock options outstanding		872,977
Available for future grants under the Stock Incentive Plan		516,223
Warrants		1,379,649
Total shares reserved		2,768,849