COMMON STOCK OPTIONS

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

COMMON STOCK OPTIONS

On February 11, 2011, the Company adopted its 2011 Equity Incentive Plan (the “Plan”) under which 6,475,750 shares of common stock were reserved for issuance under options or other equity interests as set forth in the Plan. Under the Plan, options are available for issuance to employees, officers, directors, consultants and advisors. The Plan provides that the board of directors will determine the exercise price and vesting terms of each option on the date of grant. Options granted under the Plan generally expire ten years from the date of grant.

Under the Plan, the Company has issued 161,250 shares of fully paid and non-assessable restricted common stock to a director of the Company. These shares of restricted stock are subject to the terms of the Plan and are unvested and outstanding as of June 30, 2015. The shares shall vest upon the earlier of (i) the occurrence of a Change of Control, as defined in the Plan, (ii) the successful completion of a Phase II clinical trial for any of the Company’s products, or (iii) the determination by the board of directors to provide for immediate vesting. The weighted average grant-date fair value is $1.07 per share.

The following is a summary of all common stock option activity for the six months ended June 30, 2015:

	Options Outstanding		Weighted Average Exercise Price
Outstanding at December 31, 2014		4,644,428	$	0.68
Options granted		125,000	$	0.53
Options forfeited		(15,000)	$	0.13
Options exercised		-	$	-
Outstanding at June 30, 2015		4,754,428	$	0.67

	Options Exercisable		Weighted Average Exercise Price per Share
Exercisable at December 31, 2014		3,781,096	$	0.68
Exercisable at June 30, 2015		4,112,762	$	0.67

The weighted average fair value of options granted during the six months ended June 30, 2015 was $0.15.

At June 30, 2015, the weighted average remaining contractual term for exercisable and outstanding options is 5.27 and 5.51 years, respectively.  At June 30, 2015, the aggregate intrinsic value of all of the Company’s exercisable and outstanding options is $175,500 and $175,500, respectively.

Employee stock-based compensation expense for the six months ended June 30, 2015 and 2014 is $150,570 and $236,953, respectively.

To compute compensation expense, the Company estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model for employees, and calculated the fair value of each option award at the end of the period for non-employees.  The Company based the expected volatility assumption on a volatility index of peer companies as the Company did not have sufficient historical market information to estimate the volatility of its own stock.  The expected term of options granted represents the period of time that options are expected to be outstanding.  The Company estimated the expected term of stock options by using the simplified method. The expected forfeiture rates are based on the historical employee forfeiture experiences.  To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of the Company’s awards.  The Company has not declared a dividend on its common stock since its inception and has no intentions of declaring a dividend in the foreseeable future and therefore used a dividend yield of zero.

The fair value of each share-based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions as of June 30, 2015 and 2014, respectively: risk-free rate with a range from 1.82% - 1.96% and 3.31% - 3.40%, respectively, volatility of 49.42% and 60.13%, respectively, and expected term of 5 years and 5.5 years, respectively.  There was no dividend yield included in the calculations.

As of June 30, 2015, there was $34,212 of unrecognized compensation cost related to non-vested options. The unrecognized compensation expense is estimated to be recognized over a period of 0.49 years at June 30, 2015.