Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

v2.4.1.9
STOCK-BASED COMPENSATION
 9 Months Ended
Sep. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
7. STOCK-BASED COMPENSATION
 
Accounting for Stock-Based Compensation
 
The following table summarizes amounts charged to expense for stock-based compensation related to employee and director stock option grants and recorded in connection with stock options granted to non-employee consultants:
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
Employee and director stock option grants:
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
 
$
31,441
 
$
84,949
 
$
142,142
 
$
297,561
 
General and administrative
 
 
130,700
 
 
206,449
 
 
491,665
 
 
782,731
 
Restructuring costs
 
 
—
 
 
—
 
 
47,853
 
 
—
 
 
 
 
162,141
 
 
291,398
 
 
681,660
 
 
1,080,292
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-employee consultant stock option grants:
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
 
 
(15,582)
 
 
5,812
 
 
1,115
 
 
10,134
 
General and administrative
 
 
—
 
 
464
 
 
—
 
 
11,039
 
 
 
 
(15,582)
 
 
6,276
 
 
1,115
 
 
21,173
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total stock-based compensation
 
$
146,559
 
$
297,674
 
$
682,775
 
$
1,101,465
 
 
In October 2013, the Company granted options to purchase 264,278 shares of common stock in connection with the appointment of its then Acting Chief Executive Officer, including options to purchase 96,278 shares of common stock at $15.00 per share (the “Anti-dilution Option”), exercisable as shares of the Company’s common stock are issued following the exercise of then outstanding warrants to purchase shares of the Company’s common stock, in the ratio of one option share for each 19 shares issued upon warrant exercise. No compensation expense was recognized related to these options as the Company was not able to conclude that the achievement of the performance condition was probable. On February 20, 2014, warrants to purchase 275,000 shares of common stock at an exercise price of $10.00 per share expired unexercised and as a result, the number of shares subject to the Anti-dilution Option was reduced by 14,474 shares, according to its terms.
 
Assumptions Used In Determining Fair Value
 
Valuation and amortization method. The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model.  The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period. The estimated fair value of the non-employee options is amortized to expense over the period during which a non-employee is required to provide services for the award (usually the vesting period).
 
Volatility. The Company estimates volatility based on an average of (1) the Company’s historical volatility since its common stock has been publicly traded and (2) review of volatility estimates of publicly held drug development companies with similar market capitalizations.
 
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.
 
Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised in the future. The Company applied the simplified method of estimating the expected term of the options, as described in the SEC’s Staff Accounting Bulletins 107 and 110, as the historical experience is not indicative of the expected behavior in the future. The expected term, calculated under the simplified method, is applied to groups of stock options that have similar contractual terms. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted. The Company applied the simplified method to non-employees who have a truncation of term based on termination of service and utilizes the contractual life of the stock options granted for those non-employee grants which do not have a truncation of service.
 
Forfeitures.  The Company records stock-based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. An annual forfeiture rate of 2% and 0% was applied to all unvested options for employees and directors, respectively for the nine months ended September 30, 2014 and for the year ended December 31, 2013.  Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest.
 
The following table summarizes weighted-average values and assumptions used for options granted to employees, directors and consultants in the periods indicated:
 
 
 
Nine Months Ended
September 30, 2014
 
 
Nine Months Ended
September 30, 2013
 
 
Volatility
 
 
108
%
 
 
109
%
 
Risk-free interest rate
 
 
1.76
%
 
 
0.92% - 1.82
%
 
Expected life (years)
 
 
6.0
 
 
 
6.0
 
 
Dividend
 
 
0
%
 
 
0
%
 
Weighted-average exercise price
 
$
7.40
 
 
$
9.40
 
 
Weighted-average grant-date fair value
 
$
6.20
 
 
$
7.80
 
 
 
Exercise prices for all grants made during the nine months ended September 30, 2014 and 2013 were equal to the market value of the Company’s common stock on the date of grant.
 
Stock Option Activity
 
A summary of stock option activity is as follows:
 
 
 
Number of Shares Issuable Upon
Exercise of Outstanding Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining
Contracted Term in Years
 
Aggregate Intrinsic Value
 
Outstanding at December 31, 2013
 
634,658
 
$
18.07
 
 
 
 
 
 
Granted
 
20,000
 
$
7.40
 
 
 
 
 
 
Canceled
 
(21,018)
 
$
19.57
 
 
 
 
 
 
Forfeited
 
(14,474)
 
$
15.00
 
 
 
 
 
 
Outstanding at September 30, 2014
 
619,166
 
$
17.64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vested, September 30, 2014
 
278,051
 
$
27.98
 
4.04
 
$
—
 
Unvested, September 30, 2014
 
341,115
 
$
9.21
 
9.02
 
$
—
 
Exercisable at September 30, 2014
 
278,051
 
$
27.98
 
4.04
 
$
—
 
 
The aggregate intrinsic value of options outstanding is calculated based on the positive difference between the estimated per-share fair value of common stock at the end of the respective period and the exercise price of the underlying options.  There have been no option exercises to date. Shares of common stock issued upon the exercise of options are from authorized but unissued shares.
 
As of September 30, 2014, there was approximately $1,849,000 of total unrecognized compensation cost related to unvested stock-based compensation arrangements.  Of this total amount, the Company expects to recognize approximately $1,094,000, $562,000, and $193,000 during 2014, 2015, and 2016, respectively. The Company expects 259,310 unvested options to vest in the future.  In addition, there are outstanding options to purchase 81,805 shares of common stock that vest upon the occurrence of future events. The Company was not able to conclude that the achievement of the performance condition is probable; therefore, the Company has not recognized any expense associated with the $418,000 fair value of these awards. Recognition of the expense will begin when and if the Company determines that achievement of the performance condition is probable. The weighted-average grant-date fair value of vested and unvested options outstanding at September 30, 2014 was $16.23 and $5.90, respectively.