14. Stock Options and Equity-Classified Warrants

Stock Options

The Company has a 2000 Long-Term Incentive Plan under which 1.4 million shares of common stock were originally reserved for issuance. As of December 31, 2016, there were approximately 0.5 million shares subject to outstanding stock options. This plan expired on August 6, 2010, and thus no further shares are available for future grant under this plan.

The Company also has a 2008 Stock Incentive Plan under which 30 million shares of common stock are reserved for issuance. As of December 31, 2016, there were 17.1 million shares subject to outstanding stock options and 2.3 million shares outstanding related to restricted stock grants issued from the 2008 Plan and 12.0 million shares available for future grant under this plan.

The Company follows the provisions of ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based awards made to employees.

On June 2, 2015, the Company announced that it had reached an agreement to settle the Delaware stockholder derivative action. Under the settlement, they have agreed to re-price outstanding stock options to purchase a total of 2,095,000 shares of its common stock that were granted on December 10, 2013 to certain of its directors and officers from the original exercise price of $2.39 to an exercise price of $4.66 (the share price at market closing on December 20, 2013).

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2016			2015			2014
Risk-free interest rate		1.20% - 2.26	%		1.74% - 2.42	%		1.74% - 2.12	%
Expected volatility		74% - 88	%		74% - 85	%		82% - 90	%
Expected lives (years)		6 - 10			6 - 10			6 - 10
Expected dividend yield		0.00	%		0.00	%		0.00	%

The Company's computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For option grants issued during years ended December 31, 2016, 2015 and 2014, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise behavior at this time and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company's options of ten years with the average vesting term of three years for an average of six years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. Based on historical experience, for each of the three years ended December 31, 2016, 2015 and 2014, the Company has estimated an annualized forfeiture rate of 10% for options granted to its employees, 2% for options granted to senior management and 0% for options granted to directors. Compensation costs will be adjusted for future changes in estimated forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated. No amounts relating to employee stock-based compensation have been capitalized.

At December 31, 2016, there remained approximately $4.1 million of unrecognized compensation expense related to unvested stock options granted to current employees and directors, to be recognized as expense over a weighted-average period of 1.24 years. Presented below is the Company's stock option activity for employees and directors:

	Stock Options									Weighted Average Exercise Price
	2016			2015			2014			2016		2015		2014
Outstanding — beginning of year		13,583,862			9,358,592			6,228,593		$	3.11	$	2.83	$	3.11
Granted		4,857,500			4,590,000			3,190,000			0.59		2.61		2.47
Exercised		(330,000	)		(287,143	)		(1,667	)		2.14		2.05		1.83
Forfeited		(1,176,737	)		—			(24,333	)		3.49		—		2.81
Expired		(54,855	)		(77,587	)		(34,001	)		8.03		5.58		8.18
Outstanding — end of year		16,879,770			13,583,862			9,358,592			2.36		3.11		2.83
Exercisable at end of year		10,867,920			8,020,162			4,901,511		$	2.95	$	3.45	$	3.22
Weighted average fair value of stock options granted during the year:	$	0.43		$	1.88		$	1.80

For stock options paid in consideration of services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of ASC 505-50.

Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to performance, the value of these options, as calculated using the Black-Scholes option pricing model, is determined, and compensation expense recognized or recovered during the period is adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested.

The Company recorded approximately $0, $0 and $1,276,000 of non-cash charges related to the issuance of stock options to certain consultants in exchange for services during 2016, 2015 and 2014, respectively.

At December 31, 2016, there was no unrecognized compensation expense related to unvested non-employee stock options. Presented below is the Company's non-employee stock option activity:

	Stock Options									Weighted Average Exercise Price
	2016			2015			2014			2016		2015		2014
Outstanding — beginning of year		635,714			692,143			167,143		$	3.02	$	3.47	$	5.69
Granted		—			—			550,000			—		—		2.76
Exercised		—			—			—			—		—		—
Expired/Forfeited		(35,714	)		(56,429	)		(25,000	)		7.77		8.54		2.79
Outstanding — end of year		600,000			635,714			692,143			2.73		3.02		3.47
Exercisable at end of year		600,000			635,714			692,143		$	2.73	$	3.02	$	3.47
Weighted average fair value of stock options granted during the year:	$	—		$	—		$	1.98

The fair value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model, based on the following assumptions:

	2016		2015		2014
Risk-free interest rate		—		—		2.23	%
Expected volatility		—		—		85.0	%
Expected lives (years)		—		—		10
Expected dividend yield		—		—		0	%

The following table summarizes significant ranges of outstanding stock options under the two plans at December 31, 2016:

Range of Exercise Prices		Number of Options		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Contractual Life		Weighted Average Exercise Price
$	0.43 — 1.50		4,432,498		9.95	$	0.44		1,086,696		9.95	$	0.45
$	1.51 — 2.50		8,932,606		7.85		2.26		6,293,224		7.49		2.22
$	2.51 — 4.00		960,670		7.13		2.88		934,004		7.10		2.87
$	4.01 — 32.55		3,153,996		6.17		5.24		3,153,996		6.17		5.24

			17,479,770		8.04	$	2.37		11,467,920		7.33	$	2.93

There was no aggregate intrinsic value to the outstanding options, options vested, and options exercised during 2016.

The following table sets forth the total stock-based compensation expense resulting from stock options and warrants included in the Company's Statements of Operations:

	Years Ended December 31,
	2016		2015		2014
Research and development - employee	$	1,822,508	$	1,590,267	$	932,482
General and administrative - employee		4,661,795		5,568,537		2,383,624
Total employee stock-based compensation	$	6,484,303	$	7,158,804	$	3,316,106

Research and development – non-employee	$	—	$	—	$	86,539
General and administrative – non-employee		235,764		225,852		1,736,703
Total non-employee stock-based compensation	$	235,764	$	225,852	$	1,823,242

Restricted Stock

In December 2016, the Company granted to Stephen Kriegsman, Chief Executive Officer, 2,325,581 shares of restricted common stock, pursuant to the 2008 Plan. This restricted stock vests in equal annual instalments over three years. The fair value of the restricted stock is based on the market price of the Company's shares on the grant date less the par value received as consideration. The fair value of the restricted stock on the grant date was $1,000,000. The Company did not issue any restricted stock for the year ended December 31, 2015. On January 1, 2014, the Company granted to Dr. Daniel Levitt, Executive Vice President and Chief Medical Officer, 100,000 shares of restricted common stock pursuant to the 2008 Plan, which shares have now fully vested. The fair value of the restricted stock is based on the market price of the Company's shares on the grant date less the par value received as consideration. The fair value of the restricted shares granted on January 1, 2014 was $626,900. The Company recorded an employee stock-based compensation expense for restricted stock of approximately $15,000, $0 and $626,900 for the years ended December 31, 2016, 2015 and 2014, respectively.

Equity-Classified Warrants

In December 2016, the Company issued to a consultant a one-year contingent warrant to purchase 2,000,000 shares of common stock at an exercise price of $0.70. No expense was recorded due to the performance contingent nature of the warrants. Should this performance contingency be removed, the warrant term will be extended for eighteen months from that date.

In February 2016, in connection with a loan and security agreement with Hercules Technology Growth Capital, Inc. and Hercules Technology III, L.P. ("lenders") (see Note 10), the Company issued to the lenders warrants to purchase a total of 634,146 shares of our common stock at an exercise price of $2.05. These warrants had a fair value of $633,749 on the date of issuance and were recorded as a loan discount.

In February 2016, the Company also issued a warrant to a consultant to purchase 500,000 shares of our common stock at an exercise price of $1.74. These warrants will be fully vested by February 2018. The warrant expense in 2016, recognized as non-employee stock-based compensation expenses, was $157,797.

In March 2015, the Company extended the term of the 250,000 warrants issued in November 2013 by three years. These warrants will now expire in 2018. The Company recognized a non-employee stock-based compensation expense of $77,967 relating to the term extension in 2016 and $61,480 in 2015.

In March 2014, the Company issued a warrant to purchase 25,000 shares of its common stock at an exercise price of $5.60 in connection with the establishment of its Freiburg, Germany research and development laboratory.

A summary of the Company's warrant activity and related information for the years ended December 31 are shown below.

	Warrants									Weighted Average Exercise Price
	2016			2015			2014			2016		2015		2014
Outstanding — beginning of year		7,225,472			7,349,760			8,324,609		$	4.28	$	4.27	$	4.86
Granted		31,705,575			—			25,000			0.62		—		5.60
Exercised		(56,358	)		(10,000	)		(340,527	)		0.70		2.50		2.56
Forfeited		—			—			—			—		—		—
Expired		(6,371,899	)		(114,288	)		(659,322	)		4.48		3.82		12.66
Outstanding — end of year		32,502,790			7,225,472			7,349,760			0.68		4.28		4.27
Exercisable at end of year		30,190,290			7,225,472			7,149,760		$	0.67	$	4.28	$	4.32
Weighted average fair value of warrants granted during the year:	$	0.26		$	—		$	3.46

During 2016, no warrants were surrendered in connection with the cashless exercise, as compared to 10,000 warrants during 2015.

The following table summarizes additional information concerning warrants outstanding and exercisable at December 31, 2016:

						Warrants Outstanding
Range of Exercise Prices		Number of Shares		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Number of Warrants Exercisable		Weighted Average Contractual Life		Weighted Average Exercise Price
$	0.43 — 1.50		31,015,071		1.29	$	0.60		28,702,571		1.25	$	0.58
$	1.51 — 2.50		1,337,719		2.69		2.30		1,337,719		2.30		2.30
$	2.51 — 4.00		125,000		1.86		3.75		125,000		1.86		3.75
$	4.01 — 32.55		25,000		7.21		5.60		25,000		7.21		5.60

			32,502,790		1.35	$	0.68		30,190,290		1.35	$	0.67