11. STOCK-BASED COMPENSATION

All equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”). As of December 31, 2013, 136 thousand shares of the Company’s common stock remained available for issuance under the 2008 Plan.

The Company measures the cost of equity-based service awards based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award or the requisite service period. The Company recognizes stock-based compensation expense ratably over the vesting periods of the awards, adjusted for estimated forfeitures. The non-cash, stock-based compensation cost that was incurred by the Company in connection with the 2008 Plan was $36 thousand and $0 for the years ended December 31, 2013 and 2012, respectively, which was included in sales, general and administrative expense in the accompanying consolidated statements of operations. No income tax benefit was recognized in the Company’s consolidated statements of operations for stock-based compensation arrangements due to the Company’s net loss position.

Stock Options

Outstanding employee stock options generally vest over a period of three or four years and have 10-year contractual terms. Upon exercise of an option, the Company issues new shares of its common stock.

No options were granted by ANIP in 2012. For 2013, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, using the following weighted average assumptions:

	2013
Expected option life (years)	6.25
Risk-free interest rate	1.72	%
Expected stock price volatility	55.0	%
Dividend yield	—

The Company uses the simplified method to estimate the life of options. The risk-free interest rate used is the yield on a United States Treasury note as of the grant date with a maturity equal to the estimated life of the option. The Company calculated an estimated volatility rate based on the closing prices of several competitors that manufacture similar products. The Company has not issued a cash dividend in the past nor does it have any current plans to do so in the future; and therefore, an expected dividend yield of zero was used. Forfeitures are estimated at the time of grant and revised through a cumulative catch-up adjustment in the period of change if actual forfeitures differ from those estimates. For stock options granted during the year ended December 31, 2013, the Company has estimated a forfeiture rate of zero.

In July 2013, the Company granted 21 thousand options to the non-officer directors under the 2008 Plan. The weighted average fair value of the options at the date of grant for options granted during 2013 was $3.40 per share. BioSante had 99 thousand stock options outstanding at the date of the Merger. These continued as a result of the Merger, as stock options previously issued and still outstanding under BioSante’s Plans became fully-vested on the date of the Merger.

On July 12, 2013, the Company’s Board of Directors approved grants of stock options to employees under the 2008 Plan, subject to shareholder approval of an increase in the total shares available for issuance under the 2008 Plan. As of December 31, 2013, the Company had 325 thousand common stock options outstanding pending shareholder approval. Expense related to these stock options will begin to be recognized only upon shareholder approval.

A summary of stock option activity under the Plan during the year ended December 31, 2013 and 2012 is presented below:

(in thousands, except per share data)	Option Shares	Weighted Average Exercise Price		Weighted Average Remaining Term	Aggregate Intrinsic Value
Outstanding December 31, 2011	18	$	11.00	6.2	$	0
Granted	-		-
Exercised	-		-			0
Forfeited or expired	(18)	$	11.00
Outstanding December 31, 2012	-		-	-	$	—
Exercisable at December 31, 2012	-		-	-	$	—
Vested or expected to vest at December 31, 2012	-		-	-	$	—
Net BioSante Stock Options assumed	99	$	59.59
Granted	21	$	6.36
Exercised	-		-			—
Forfeited or expired	-		-
Outstanding December 31, 2013	120	$	50.35	2.4	$	81
Exercisable at December 31, 2013	99	$	59.59	0.9	$	—
Vested or expected to vest at December 31, 2013	120	$	50.35	2.4	$	81

As of December 31, 2013, there was $63 thousand of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.53 years.

Restricted Stock Awards

On November 1, 2013, the Company granted 50 thousand restricted stock awards (“RSAs”) to the non-officer directors under the 2008 Plan. No RSAs were granted in the year ended December 31, 2012. The RSAs vest one-third per year, over three years on the anniversary of the grant date, provided that the director continues to serve as a director of the Company on each of the vesting dates. Shares of the Company’s common stock delivered to the directors will be unrestricted upon vesting. During the vesting period, the recipient of the restricted stock has full voting rights as a stockholder and would receive dividends, if declared, even though the restricted stock remains subject to transfer restrictions and will generally be forfeited upon termination of the director from the board prior to vesting. The fair value of each RSA is based on the market value of the Company’s stock on the date of grant.

A summary of RSA activity under the Plan during the year ended December 31, 2013 is presented below:

(in thousands, except per share data)	Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Term (years)
Unvested at December 31, 2012	-	$	-
Granted	50	$	10.20
Vested	-	$	-
Forfeited	-	$	-
Unvested at December 31, 2013	50	$	10.20	2.84

As of December 31, 2013, there was $0.5 million of total unrecognized compensation cost related to non-vested RSAs granted under the Plan, which is expected to be recognized over a weighted-average period of 2.84 years.