In 2005, the Company approved the 2005 Equity Incentive Plan (the “2005 Plan”). The 2005 Plan provides for the granting of options, restricted stock or other stock-based awards to employees, officers, directors, consultants and advisors. During 2010, the maximum number of shares of Common Stock that may be issued pursuant to the 2005 Plan was increased to 891,222 shares. The Board of Directors (the “Board”) is responsible for administration of the 2005 Plan. The Company’s Board determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. Incentive stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of fair value in the case of holders of more than 10% of the Company’s voting stock) and with a term not to exceed ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company’s voting stock). Nonqualified stock options may be granted to any officer, employee, consultant or director at an exercise price per share of not less than the par value per share.

The Company’s adopted the 2014 Equity Incentive Plan (the “2014 Plan”), and the Employee Stock Purchase Plan the (the “ESPP”), and the Company’s Stockholders approved the 2014 Plan and the ESPP Plan in February 2015. The maximum number of shares of Common Stock that may be issued pursuant to the 2014 Plan and the ESPP is 1,034,888 and 70,567 shares, respectively.

On January 1, 2017 and 2016, the number of shares of Common Stock issuable under the 2014 Plan automatically increased by 405,235 and 306,291 shares pursuant to the terms of the 2014 Plan, respectively, which additional shares are included in the total of 1,440,123 shares issuable under the 2014 Plan.

The following is a summary of stock option activity for the twelve months ended December 31, 2016 and 2015:

 

 

		Number of Options				Weighted- Average Exercise Price				Weighted- Average Contractual Life (In Years)
Outstanding at December 31, 2014			752,372			$	0.91				4.30
Granted			560,393				5.12				9.08
Exercised			(26,799	)			2.37
Expired			(8,599	)			0.65
Outstanding at December 31, 2015			1,277,367			$	2.75				4.94
Granted			377,771				2.74				9.79
Exercised			(86,765	)			0.65
Expired (Forfeited)			(58,662	)			3.31
Outstanding at December 31, 2016			1,509,711			$	2.85				5.04
Exercisable at December 31, 2016			1,004,395			$	2.86				3.09
Vested and Expected to Vest at December 31, 2016			1,509,711			$	2.85				5.04

 

On February 24, 2015, the Board approved the issuance of 350,000 stock options under the 2014 Plan to two executives and seven members of the Board. These options vest 25% on the grant date, 25% on the one-year anniversary of the grant date, and the remaining 50% in 24 monthly equal installments thereafter.

During the year ended December 31, 2015, and the six months ended June 30, 2016, the Company estimated the volatility of its Common Stock based on the average of published volatilities contained in the most recent audited financial statements of other SEC reporting companies in industries similar to that of the Company. Effective July 1, 2016, the Company determined that the prior methodology for measuring the volatility of its Common Stock was no longer the best estimate of volatility and the Company will measure volatility using its Common Stock volatility. The Company believes that the public market for its Common Stock is the best measure to use as an input in the option pricing model. All future grants of stock options will use the Company’s historic Common Stock volatility.

During the year ended December 31, 2016, the Board approved the grant of options to purchase 377,771 shares of its Common Stock. All option grants were pursuant to the 2014 Plan. In general, options granted under the 2014 Plan vest 33.33% on the one-year anniversary of the grant date, and the remainder ratably over the 24-month period following the one-year anniversary.

The total stock-based compensation expense for employees and non-employees is included in the accompanying Consolidated Statements of Operations and as follows:

 

 

		Year Ended December 31
		2016				2015
Research and Development		$	46,288			$	183,235
General and Administrative			464,707				1,041,452
		$	510,995			$	1,224,687

The fair value of options granted for the twelve months ended December 31, 2016 and December 31, 2015 was approximately $758,000 and $202,000, respectively. As of December 31, 2016 and December 31, 2015, there is approximately $984,000 and $900,000 of total unrecognized compensation expense related to unvested stock-based compensation arrangements granted, which cost is expected to be recognized over a weighted average period of 2.43 and 3.13 years, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2016 and December 31, 2015 is approximately $544,000 and $1,382,000. The intrinsic value of stock options exercised during 2016 and 2015 was approximately $207,000 and $135,000, respectively.

At December 31, 2016, there were options to purchase 101,176 shares of Common Stock available for grant under the 2014 Plan.