Stock-based compensation

In March 2014, the Company adopted the Flex Pharma, Inc. 2014 Equity Incentive Plan (the "2014 Plan"), under which it had the ability to grant incentive stock options ("ISOs"), non-qualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to purchase up to 116,754 shares of common stock. In April 2014, the Company amended the 2014 Plan to reserve for the issuance of up to 1,451,087 shares of common stock pursuant to equity awards. In September 2014, the Company further amended the 2014 Plan to reserve for the issuance of up to 2,070,200 shares of common stock pursuant to equity awards. Terms of stock award agreements, including vesting requirements, were determined by the board of directors, subject to the provisions of the 2014 Plan. For options granted under the 2014 Plan, the exercise price equaled the fair market value of the common stock as determined by the board of directors on the date of grant. No further awards will be granted under the 2014 Plan.

In January 2015, the Company's board of directors adopted, and the Company's stockholders approved, the 2015 Equity Incentive Plan (the "2015 Plan"), which became effective immediately prior to the closing of the Company's IPO. The 2015 Plan provides for the grant of ISOs, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance-based stock awards and other stock-based awards. Additionally, the 2015 Plan provides for the grant of performance-based cash awards. ISOs may be granted only to the Company's employees. All other awards may be granted to the Company's employees, including officers, and to non-employee directors and consultants. As of December 31, 2016, there were 566,323 shares remaining available for the grant of stock awards under the 2015 Plan.

During the period from February 26, 2014 (inception) to December 31, 2016, the Company granted a total of 272,993 stock options to non-employee consultants and members of its Scientific Advisory Board, which are included in the following table. The options generally vest over a four-year period, and have a contractual term of ten years. The total stock-based compensation expense related to all non-employee stock options for the twelve months ended December 31, 2016, the twelve months ended December 31, 2015 and the period from February 26, 2014 (inception) to December 31, 2014 was approximately $369,735, $517,336 and $149,000, respectively.

The Company has awarded stock options to its employees, directors, advisors and consultants, pursuant to the plans described above. Stock options subsequent to the completion of the Company's IPO are granted with an exercise price equal to the closing market price of the Company's common stock on the date of grant. Stock options generally vest over one to four years and have a contractual term of ten years. Stock options are valued using the Black-Scholes option pricing model and compensation cost is recognized based on the resulting value over the service period. Unvested awards to non-employees are re-measured at each vest date and at each financial reporting date. The following table summarizes stock option activity for employees and non-employees for the twelve months ended December 31, 2016:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2015	1,824,973		$	8.34	8.90	$	9,073,673
Granted	763,320		10.03
Exercised	(8,516	)	2.59
Cancelled or forfeited	(423,527	)	9.86
Outstanding at December 31, 2016	2,156,250		$	8.66	7.94	$	1,605,684
Exercisable at December 31, 2016	875,868		$	7.49	6.87	$	1,082,490
Vested or expected to vest at December 31, 2016	2,117,832		$	8.64	7.92	$	1,594,651

During 2016, 2015 and the period from February 26, 2014 (inception) to December 31, 2014, the Company granted stock options to purchase an aggregate of 763,320, 994,748, and 1,020,234 shares of its common stock, respectively. The weighted-average grant date fair value of option awards granted during 2016, 2015 and the period from February 26, 2014 (inception) to December 31, 2014 were $6.35, $8.55, and $2.20, respectively.

The number of stock options exercised during 2016, 2015 and the period from February 26, 2014 (inception) to December 31, 2014 were 8,516, 47,280, and 13,572, respectively. The weighted-average exercise price of options exercised during 2016, 2015 and the period from February 26, 2014 (inception) to December 31, 2014 was $2.59, $8.63, and $0.60, respectively. The total intrinsic value of options exercised during 2016, 2015 and the period from February 26, 2014 (inception) to December 31, 2014 was $64,302, $149,386, and $51,719, respectively. The intrinsic value is calculated as the difference between the fair value of the Company's common stock and the exercise price of the options at the date of exercise.

The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes option-pricing model based on the following assumptions regarding the fair value of the underlying Common Stock on each measurement date:



	Year Ended December 31, 2016		Year Ended December 31, 2015		Period from February 26, 2014 (Inception) to December 31, 2014
Expected volatility	71.01% to 74.20%		72.98% to 74.94%		75.8% to 76.4%
Risk-free interest rate	1.23% to 2.40%		1.62% to 2.49%		1.59% to 2.71%
Expected term	5.3 - 10 years		5.3 - 10 years		6 - 10 years
Expected dividend yield	0	%	0	%	0	%

Total stock-based compensation expense recognized for employee and non-employee restricted common stock, and stock options granted to employees and non-employees is included in the Company's consolidated statements of operations and comprehensive loss as follows:



	Year Ended December 31, 2016		Year Ended December 31, 2015		Period from February 26, 2014 (Inception) to December 31, 2014
Research and development	$	2,435,565	$	3,192,063	$	648,001
Selling, general and administrative	4,137,398		3,405,296		814,060
Total	$	6,572,963	$	6,597,359	$	1,462,061

As of December 31, 2016, there was approximately $8,668,326 of total unrecognized compensation cost related to unvested equity awards. Total unrecognized compensation cost will be adjusted for the re-measurement of non-employee awards as well as future changes in employee and non-employee forfeitures, if any. The Company expects to recognize that cost over a remaining weighted-average period of 2.11 years.

In November 2015, the Company granted 150,000 performance-based stock options to an employee which would have vested upon the achievement of certain future revenue milestones. During the third quarter of 2016, these options were cancelled in conjunction with an employment termination agreement. The vesting conditions had not previously been considered probable, and no stock-based compensation expense was recorded related to this award.

In May 2016, in connection with an amendment to an employment agreement, the Company recorded stock-based compensation expense for a modification to an option award that totaled approximately $227,000. In August 2016, in connection with an employment termination agreement, the Company recorded stock-based compensation expense for a modification to an option award that totaled approximately $58,000.