9. Stock-Based Compensation

Share-based Compensation

In June 2016, the Company’s stockholders approved the 2016 Equity Incentive Plan (the 2016 Plan). The plan provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance-based stock awards. 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. With the approval of the 2016 Plan, 1,000,000 new shares were added and the remaining unallocated shares from the Company’s 2013 Stock Incentive Plan were allocated to the 2016 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 June 30, 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 for the six months ended June 30, 2016:



	June 30,
	2016
Risk-free interest rate	1.46 to 1.63	%
Expected volatility	113 to 115	%
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 June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Research and development	$	26,000	$	30,000	$	52,000	$	59,000
General and administrative		436,000		22,000		1,226,000		45,000
Total stock-based compensation	$	462,000	$	52,000	$	1,278,000	$	104,000

The following table summarizes stock option activity for the six months ended June 30, 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		(224,208)		224,208		2.85		-		-
Exercised		-		-		-		-		-
Forfeited		150,956		(150,856)		9.03		-		-
Expired		-		(4,100)		14.39		-		-
Shares authorized		1,000,000		-		-		-		-
Balance, June 30, 2016		1,650,179		739,021	$	6.81		8.99	$	-
Vested or expected to vest at June 30, 2016				612,640	$	7.18		8.91	$	-
Exercisable at June 30, 2016				154,312	$	8.93		7.91	$	-

The intrinsic value of options exercisable as of June 30, 2016 was $0.0, based on the Company’s closing stock price of $1.55 per share and the exercise price of the options.

During the six months ended June 30, 2016, the Company issued 224,208 common stock options to its employees and an executive with an average exercise price of $2.85 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 and six months ended June 30, 2015.

As of June 30, 2016, there was $2.2 million of total unrecognized compensation expense related to unvested stock options, which the Company expects to recognize over the weighted average remaining period of 2.75 years.

Shares Reserved For Future Issuance

As of June 30, 2016, the Company had reserved shares of its common stock for future issuance as follows:



	Shares Reserved
Stock options outstanding		739,021
Available for future grants under the 2016 Plan		1,650,179
Warrants		2,443,479
Total shares reserved		4,832,679

Employee Stock Purchase Plan (ESPP)

On June 20, 2016, the Company’s stockholders approved the Company’s 2016 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employees on a voluntary basis to purchase shares of the Company’s common stock. The shares are sold to participants at a price equal to the lesser of 85% of the fair market value of the Company’s common stock at the (i) beginning of the six month offering period, or (ii) end of the six month purchase period. The ESPP provides for four six month purchase periods during each 24 month term. The initial shares provided for under the plan are 120,000, and automatically increase annually as allowed for under the ESPP, beginning January 1, 2017 and through January 1, 2026.

As of the six months ended June 30, 2016, no shares have been issued under the ESPP.