Stock-based Activity

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Stock-based Activity

Amendment of Equity Incentive Plan

On March 31, 2015, the Company approved a Second Amended and Restated 2014 Employee, Director and Consultant Equity Incentive Plan (the “Plan”) to increase the number of shares reserved for issuance under the Plan from 158,073 to 8,360,789 shares of common stock. Additional changes to the Plan include:

● An “evergreen” provision to reserve additional shares for issuance under the Plan on an annual basis commencing on the first day of fiscal 2016 and ending on the second day of fiscal 2024, such that the number of shares that may be issued under the Plan shall be increased by an amount equal to the lesser of: (i) 8,000,000 or the equivalent of such number of shares after the administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the Plan; (ii) the number of shares necessary such that the total shares reserved under the Plan equals (x) 15% of the number of outstanding shares of common stock on such date (assuming the conversion of all outstanding shares of Preferred Stock (as defined in the Plan) and other outstanding convertible securities and exercise of all outstanding warrants to purchase common stock) plus (y) 229,000; and (iii) an amount determined by the Board;

● Provide that no more than 3,000,000 shares may be granted to any participant in any fiscal year.

● Provisions to allow for performance based equity awards to be issued by the Company in accordance with Section 162(m) of the Internal Revenue Code.

Stock-based Compensation

We measure stock-based compensation expense for equity-classified awards, principally related to stock options and restricted stock units, or RSUs, based on the estimated fair values of the awards on the date of grant. We recognize the value of the portion of the award that we ultimately expect to vest as stock-based compensation expense over the requisite service period in our condensed consolidated statements of operations. Due to limited activity in 2016 and 2015, we assumed a forfeiture rate of zero.

We use the Black-Scholes model to estimate the fair value of stock options granted. The expected term of stock options granted represents the period of time that we expect them to be outstanding. For the three and six months ended June 30, 2016 we used volatility of 81.98% to 83.75%, dividend rate of 0%, expected term of 6 years, and risk-free interest rate of 1.23% to 1.43% in our Black-Scholes calculations. For the three and six months ended June 30, 2015, we used volatility of 86.62%, dividend rate of 0%, expected term of 6 years, and risk-free interest rate of 0.87% in our Black-Scholes calculations.

Total estimated stock-based compensation expense, related to all of the Company’s stock-based payment awards recognized under ASC 718, “Compensation—Stock Compensation” was comprised of the following:

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2016			2015			2016			2015
Research and development		$	284,057		$	284,125		$	587,681		$	325,701
General and administrative			673,506			1,104,883			1,903,770			1,146,079
Total stock-based compensation expense		$	957,563		$	1,389,008		$	2,491,451		$	1,471,780

 Stock-based Award Activity

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2016:

	Options Outstanding			Weighted-Average Exercise Price
Outstanding at December 31, 2015		3,243,041		$	2.36
Granted		1,655,500			0.73
Exercised		—			—
Forfeited/cancelled/expired		(219,449	)		2.30
Outstanding and expected to vest at June 30, 2016		4,679,092		$	1.90
Vested and exercisable at June 30, 2016		1,005,213		$	2.54

The total unrecognized compensation cost related to nonvested stock option grants as of June 30, 2016, was $3,331,388, and the weighted average period over which these grants are expected to vest is 2.08 years. The Company has assumed a forfeiture rate of zero. The weighted average remaining contractual life of stock options outstanding at June 30, 2016, is 9.0 years.

During the first six months of 2016, the Company granted 1,655,500 options to officers and employees with a weighted average exercise price of $0.73 and vesting over a three-year period with vesting starting at the one-year anniversary of the grant date.  During the first six months of 2015, there were 2,615,850 options and 2,180,850 shares of restricted stock granted to directors, officers, employees and consultants.  

Because the Company had a net operating loss carryforward as of June 30, 2016, no tax benefits for the tax deductions related to stock-based compensation expense were recognized in the Company’s condensed consolidated statements of operations. Additionally, there were no stock options exercised in the three and six months ended June 30, 2016 and there were 2,779 stock options exercised during the three and six months ended June 30, 2015.

A summary of activity related to restricted stock grants under the Plan for the six months ended June 30, 2016 is presented below:

	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at December 31, 2015		2,300,850		$	2.28
Granted		—			—
Vested		(726,952	)		2.30
Forfeited		—			—
Nonvested at June 30, 2015		1,573,898		$	2.28

As of June 30, 2016, unamortized compensation expense related to restricted stock grants amounted to $2,975,469, which is expected to be recognized over a weighted average period of 1.8 years. 

Management Bonus Plan

On April 2, 2015, the Compensation Committee of the Board of the Directors approved the 2015 Management Bonus Plan (the “Management Plan”) outlining maximum target bonuses of the base salaries of certain of the Company’s executive officers.  Under the terms of the Management Plan, the Company’s Chief Executive Officer shall receive a maximum target bonus of up to 50% of his annual base salary, the Chief Financial Officer shall receive a maximum target bonus of up to 35% of his annual base salary and the Company’s Vice President shall receive a maximum target bonus of up to 25% of his annual base salary.

 On April 4, 2015, the Board approved the following Non-Employee Director Policy (the “Incumbent Director Policy”) with respect to incumbent non-employee members of the Board in the event that they are replaced before their term expires:

● A one-time issuance of 20,000 restricted shares of common stock;

● The vesting of all options and restricted stock grants held on such date; and

● The payment of all earned but unpaid cash compensation for their services on the Board and its committees, as of such date.

On April 4, 2015, in connection with his resignation from the Board, Michael Wick received a one-time restricted stock grant of 20,000 shares under the Incumbent Director Policy.

On February 16, 2016, our Compensation Committee approved a 2016 Management Bonus Plan outlining maximum target bonuses of the base salaries of certain of our executive officers. Under the terms of the Management Plan, the Company's Chief Executive Officer shall receive a maximum target bonus of up to 50% of his annual base salary, and the Chief Financial Officer and each of the Company's Vice Presidents shall receive a maximum target bonus of up to 30% of their annual base salary.

Stock Issued Upon Vesting of Restricted Stock Grants

On April 2 and April 3, 2016, 726,954 shares of restricted stock units vested upon the one-year anniversary of restricted stock units granted. Accordingly, 476,498 shares were issued to the Company’s directors and officers, and the Company withheld 250,456 shares for the employee portion of taxes and remitted $177,823 to the tax authorities in order to satisfy tax liabilities related to this issuance on behalf of the officers. As of June 30, 2016, there were 1,573,898 nonvested restricted stock units remaining outstanding.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following at June 30, 2016:

Common stock reserved for conversion of preferred stock	20,662,100
Common stock reserved for exercise of warrants	8,876,336
Common stock options outstanding	4,679,092
Authorized for future grant or issuance under the Stock Plan	1,521,038
Nonvested restricted stock	1,573,898
Total	37,312,464