NOTE 12: STOCK BASED COMPENSATION

Compensation costs associated with the company’s stock options are recognized, based on the grant-date fair values of these options, over the requisite service period, or vesting period. Accordingly, the Company recognized stock based compensation expense of $167,534 and $397,715 for the three months and six months ended June 30, 2014, respectively. The stock based compensation for the three months and six months ended June 30, 2013 was $737,309 and $1,011,820, respectively.

The following table presents information concerning stock option grants for the six months ended June 30, 2014:

	Employees			Executives & Officers			Directors
Date of Grant	January 8, 2014			January – June 2014			January - June 2014

Fair value of common stock on date of grant	$	2.20		$	1.22 - 2.20		$	1.22 - 2.20
Exercise price of the options	$	2.20		$	1.22- 2.20		$	1.22-2.20
Expected life of the options (years)		6.06			6.06 - 6.11			5.09 – 5.31
Dividend yield		0.00	%		0.00	%		0.00	%
Expected volatility		41.70- 41.72	%		40.98 - 41.70	%		38.64 - 38.68	%

Risk-free interest rate		2.11	%		1.85 - 2.11	%		1.53 – 1.75	%
Expected forfeiture per year (%)		10.00	%		10.00	%		10.00	%
Weighted average fair value of the options per unit	$	0.95		$	0.66		$	0.53

Options issued and outstanding as of June 30, 2014 and their activities during the six months then ended are as follows:

	Number of Underlying Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Contractual Life Remaining in Years		Aggregate Intrinsic Value
Outstanding as of January 1, 2014		2,282,719	$	4.43			$	282,063
Granted		1,436,669		1.46
Forfeited		(69,236)		4.64				450
Exercised		(40,000)		1.25				14,400
Outstanding as of June 30, 2014		3,610,152		3.28		8.32		561,650
Exercisable as of June 30, 2014		1,413,969		4.50		6.63		88,150
Vested and expected to vest (1)		3,326,450	$	3.34		8.22	$	508,716

(1) vested shares and unvested shares after a forfeiture rate is applied

At June 30, 2014, there were 2,196,183 unvested options outstanding that will vest over a weighted-average period of 3.07 years. The total estimated compensation expense to be recognized in connection with these options is $1,858,544.

Issuance of Restricted Common Stock for Directors’ Compensation

On October 10, 2013, the Company issued 24,510 shares of restricted stock with a grant date value of $50,000 or $2.04 per share to a new board member. On March 1, 2014, the Company agreed to issue 22,728 shares of restricted stock with a grant date value of $50,000 or $2.20 per share to a new board member. These share issuances were canceled in May 2014 in connection with a new compensation plan adopted by the Board of Directors for independent members of the Board and the grants were each replaced with $35,000 in cash payment.

On May 6, 2014, options to purchase a total of 15,000 shares of common stock, with exercise prices of $1.22 per share which was the fair market value on the date of grant, were also granted under the 2010 Plan to each of our four non-employee directors for service on the Board during the year following our 2014 annual meeting of stockholders. On that date, options to purchase 665,000 shares of stock, exercisable at $1.22 per share, which was the fair market value on the date of grant, were granted to senior officers under the 2010 Plan. The options granted to non- employee directors vest quarterly over one year and options granted to the senior officers vest quarterly over four years.

In May 2014, 200,000 stock options were granted outside the 2010 Plan to the Vice President of Clinical Research and Development. The options have an exercise price of $1.25, which was the fair market value on the date of grant, and vest 25% at the end of the first year and vest quarterly thereafter over the following three years.

In June 2014, 200,000 stock options were granted outside the 2010 Plan to the Senior Vice President of Global Regulatory Affairs and Quality Assurance. The options have an exercise price of $1.41, which is the fair market value on the date of grant, and vest 25% at the end of the first year and vest quarterly thereafter over the following three years.

Stock Options and Incentive Plan

On September 28, 2010, the Board of Directors approved the adoption of the 2010 Stock Option and Incentive Plan, or the 2010 Plan, to provide for the grant of equity-based awards to employees, officers, non-employee directors and other key persons providing services to the Company. Awards of incentive options may be granted under the 2010 Plan until September 2020. No other awards may be granted under the 2010 Plan after the date that is 10 years from the date of stockholder approval. An aggregate of 1,000,000 shares were initially reserved for issuance in connection with awards granted under the 2010 Plan, such number of shares to be subject to adjustment as provided in the plan and in any award agreements entered into by the Company under the plan, and upon the exercise or conversion of any awards granted under the plan. On January 1, 2012, 450,275 shares were added to the 2010 Plan and on January 1, 2013, 516,774 shares were added to the 2010 Plan, and on January 1, 2014, 742,973 shares were added to the 2010 plan as provided under the terms of the 2010 Plan.

The Company granted options to purchase 1,459,397 shares of common stock to employees and directors and issued 40,000 shares of common stock in connection with the exercise of directors stock options during the six months ended June 30, 2014. There are 267,870 options available for grant under the 2010 Plan as of June 30, 2014.