Note 4. Stockholders’ Equity

We have granted share-based compensation awards to employees, board members and service providers. Awards may consist of common stock, restricted common stock, restricted common stock units, warrants, or stock options. Our stock options and warrants have lives of up to ten years from the grant date. The stock options and warrants vest either upon the grant date or over varying periods of time. The stock options we grant provide for option exercise prices equal to or greater than the fair market value of the common stock at the date of the grant. Share-based payments are recognized at fair value. The fair value of share-based payments to employees and directors is estimated, on the date of grant. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option. For all time-vesting awards granted, expense is amortized using the straight-line attribution method. Share-based compensation expense recognized is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. Option valuation models, including the Black-Scholes model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.

Restricted stock units grant the holder the right to receive fully paid common shares with various restrictions on the holder’s ability to transfer the shares. Vesting of the restricted stock units is similar to that of stock options. As of September 30, 2015, we have approximately 37.3 million shares of common stock reserved for issuance upon the exercise of such awards.

Share-based compensation expense included in the statements of operations for the three and nine months ended September 30, 2015 and 2014 was as follows:

	Three Months Ended September 30,
	2015		2014

Research and development expenses	$	385,153	$	245,000
General and administrative expenses		420,079		411,947
Total	$	805,232	$	656,947

	Nine Months Ended September 30,
	2015		2014

Research and development costs	$	957,907	$	723,558
General and administrative expenses		1,163,142		2,915,414
Total	$	2,121,049	$	3,638,972

Included in general and administrative expenses for the nine months ended September 30, 2014 is approximately $2.0 million related to the extension of the term of a common stock purchase warrant based on the holder achieving certain performance based milestones.

No income tax benefit was recognized in the consolidated statements of operations for stock-based compensation for the years presented due to the Company’s net loss position.

Stock Options A summary of stock option activity during the nine months ended September 30, 2015 and related information is included in the table below:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value

Outstanding at January 1, 2015		18,986,395	$	1.89		5.1	$	20,306,807
Granted		765,549	$	3.09
Exercised		(1,031,774)	$	0.54			$	68,400
Forfeited		(1,233,890)	$	0.83
Outstanding at September 30, 2015		17,486,280	$	2.10		5.1	$	1,897,315

Exercisable at September 30, 2015		14,240,432	$	2.21		4.6	$	1,277,927

Vested and expected to vest		17,481,198	$	2.10		4.8	$	1,897,315

Range of Exercise Prices	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
$0.50 - $1.00		5,000,000	$	0.92		6.8	$	1,500,000
$1.01 - $2.00		4,325,984	$	1.23		6.1		397,315
$2.01 - $3.00		2,122,669	$	2.50		4.0
$3.01 - $5.00		6,037,627	$	3.57		3.4
		17,486,280	$	2.10		5.1	$	1,897,315

The Company uses the Black-Scholes option pricing model for “plain vanilla” options and other pricing models as appropriate to calculate the fair value of options. Significant assumptions used in these models include:

	Nine Months Ended September 30,
	2015	2014

Annual dividend	-	-
Expected life (in years)	4.0-6.0	4.0 - 8.5
Risk free interest rate	1.39%-1.78%	1.12% - 2.50%
Expected volatility	68.6% - 71.8%	68.8% - 100.0%

The options granted in the nine months ended September 30, 2015 and 2014 had weighted average grant date fair values of $1.89 and $1.93, respectively.

Unrecognized compensation cost for unvested stock option awards outstanding at September 30, 2015 was approximately $4,060,000 to be recognized over approximately 1.9 years.

RSUs We have granted restricted stock units (RSUs) to certain employees that entitle the holders to receive shares of our common stock upon vesting and subject to certain restrictions regarding the exercise of the RSUs. The fair value of RSUs granted is based upon the market price of the underlying common stock as if they were vested and issued on the date of grant.

A summary of our restricted stock unit activity for the nine months ended September 30, 2015 is as follows:

	Number of RSU's		Weighted- Average Grant Date Fair Value

Outstanding at January 1, 2015		447,275	$	2.18
Granted		-
Vested and converted to common shares		-
Forfeited		-
Outstanding at September 30, 2015		447,275	$	2.18

Exercisable at September 30, 2015		447,275	$	2.18

Restricted Stock We have granted restricted stock to certain board members based on revised board of director year and compensation policy.

A summary of our restricted stock activity for the nine months ended September 30, 2015 is as follows:

	Number of RS		Weighted- Average Grant Date Fair Value

Granted		427,808
Converted to common shares		(106,952)
Forfeited		-
Outstanding at September 30, 2015		320,856	$	1.87

Stock Purchase Warrants: Warrants to purchase common stock were issued to certain officers, directors, stockholders and service providers. We have also issued warrants in conjunction with debt offerings and equity raises and at various times replacement warrants were issued in conjunction with warrant exercises.

A summary of warrant activity for the nine months ended September 30, 2015 follows:

	Number of Warrants		Weighted- Average Exercised Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value

Outstanding at January 1, 2015		21,422,346	$	2.30		3.8	$	15,984,739
Granted		150,000	$	1.87		4.8
Exercised		(1,724,606)	$	1.94
Forfeited		(24,794)	$	2.13
Outstanding at September 30, 2015		19,822,946	$	2.33		3.3	$	1,271,994

Exercisable at September 30, 2015		19,710,446	$	2.33		3.3	$	1,271,994

Common Stock

In January, 2014, we closed a registered direct offering of 6,872,859 shares of common stock at a price of $2.91 per share. We received aggregate gross proceeds of $20 million and net proceeds of approximately $18,630,000 from the offering. In connection with the offering, we also issued 3,436,435 common stock purchase warrants; the warrants have an exercise price of $3.64, a term of five years and are classified within equity. This offering was made pursuant to our $50 million shelf registration statement declared effective by the SEC on September 13, 2013 (Registration No. 333-190936). Additionally, as a result of this transaction an advisor to the Company met certain capital raising milestones and consequently, the term of their common stock purchase warrant was extended to 5 years.

In 2014, we issued 249,163 shares of common stock as a result of sales under our At the Market Offering Agreement. The shares were sold at an average price of $3.55 per share and we received approximately $838,000 in net proceeds.

In 2014, we issued a total of 1,234,428 shares of our common stock upon the exercise of outstanding common stock purchase warrants and stock options. The warrants and options were exercised at an average exercise price of $1.44. We received approximately $1,714,000 of net proceeds from the exercises.

In 2014, we issued a total of 712,539 shares of our common stock upon the cashless and partial-cashless exercise of 1,194,372 outstanding common stock purchase warrants and stock options. The warrants and options were exercised at an average price of $1.03. We received approximately $20,000 of net proceeds from the exercises.

In 2014, we issued 568 shares of common stock upon conversion of certain outstanding RSU’s. We received no proceeds from this transaction.

In 2014, we issued 805,972 shares of common stock upon the conversion by the lender of $1 million of principal payments due under our March 2013 long-term debt in accordance with the terms of the loan and security agreement (see Note 3). We received no proceeds from this conversion.

In October 2014, we issued 28,119 shares of common stock and common stock purchase warrants to purchase 133,329 to various parties in conjunction with our loan amendment (see Note 3).

In the nine months ended September 30, 2015, we issued 812,423 shares of common stock as a result of sales under our At the Market Offering Agreement. The shares were sold at an average price of $3.77 per share and we received approximately $2,932,000 in net proceeds.

In the nine months ended September 30, 2015, we issued 1,705,400 shares of common stock upon the exercise of outstanding common stock purchase warrants. The warrants were exercised at an average exercise price of $1.94. We received approximately $3,074,000 of net proceeds from the exercises.

In the nine months ended September 30, 2015, we issued 1,050,980 shares of our common stock upon the cashless exercise of 2,209,000 outstanding common stock purchase warrants and stock options. The warrants and options were exercised at an average price of $0.62. We received no proceeds from the exercises.