Table of Contents
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (Continued)
and milestone payments made to third parties who perform research and development services on the Company's behalf are expensed as services are rendered or when they no longer
have alternative future use. Costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development if the technology licensed
has not reached technological feasibility and has no alternative future use.
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the
uncertainty about the recovery of the expenditure. Amounts incurred totaled $12,492, $83,163 and $0 for the years ended December 31, 2015, 2014 and 2013, respectively, and are classified as
research and development expenses.
The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, CompensationStock Compensation
("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock
options, to be recognized in the consolidated statements of operations based on their fair values.
Company's stock-based awards are subject to either service or performance-based vesting conditions. Compensation expense related to awards to employees with only service-based
vesting conditions is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards (the
"Graded Vesting Attribution Method"), based on the estimated grant date fair value for each separately vesting tranche. Compensation expense related to awards to non-employees with only service-based
vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award, which is generally
the vesting term, using the Graded Vesting Attribution Method. Compensation expense related to awards to employees with only performance-based vesting conditions is recognized based on the estimated
grant date fair value over the requisite service period using the Graded Vesting Attribution Method to the extent achievement of the performance condition is probable. Compensation expense related to
awards to non-employees only with performance-based vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the
requisite service period using the Graded Vesting Attribution Method to the extent achievement of the performance condition is probable.
Company estimates the fair value of its option awards to employees and directors using the Black-Scholes option-pricing model, which requires the input of and use of subjective
assumptions, including (i) the fair value of the underlying common stock, (ii) the expected stock price volatility, (iii) the calculation of expected term of the award,
(iv) the risk-free interest rate, and (v) expected dividends. Due to the lack of company-specific historical and implied volatility data of its common stock, the Company has based its
estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has
based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with
historical share price information sufficient to meet the expected term of the stock-based awards. The