NOTE 13: STOCK BASED COMPENSATION

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 2,426,669 shares of common stock to employees and directors and issued 160,000 shares of common stock in connection with the exercise of directors stock options during the year ended December 31, 2014. There are 439,388 options available for grant under the 2010 Plan as of December 31, 2014, and as a result of the evergreen provision contained in the 2010 Plan, there are 1,422,750 options available for grant under the 2010 Plan as of January 1, 2015.

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 $698,657 and $1,443,760 for the years ended December 31, 2014 and 2013, respectively.

		Year Ended December 31,
	2014		2013

General and administrative	$	556,288	$	1,168,455
Research and development		46,783		174,553
Selling		95,586		100,752
Total stock compensation expense	$	698,657	$	1,443,760

The following table presents information concerning stock option grants for the year ended December 31, 2014:

	Employees			Executives & Officers			Directors

Fair value of common stock on date of grant	$	0.96 - 2.20		$	0.96 - 2.20		$	1.22 - 2.20
Exercise price of the options	$	0.96 - 2.20		$	0.96- 2.20		$	1.22-2.20
Expected life of the options (years)		6.06- 6.11			6.06 - 6.11			5.09 – 5.31
Dividend yield		0.00	%		0.00	%		0.00	%
Expected volatility		38.83- 41.72	%		38.83 - 41.70	%		38.64 - 38.68	%

Risk-free interest rate		1.75 - 2.11	%		1.75 - 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	$	0.64		$	0.56		$	0.70

Options issued and outstanding as of December 31, 2014 and their activities during the year 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		2,426,669		1.45
Forfeited		(873,754)		4.29				21,540
Exercised		(160,000)		1.25				69,388
Outstanding as of December 31, 2014		3,675,634		2.86		8.11	$	344,000
Exercisable as of December 31, 2014		1,391,749		4.34		6.31	$	37,878
Vested and expected to vest (1)		3,380,169	$	2.95		8.01	$	301,945

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

At December 31, 2014, there were 2,283,885 unvested options outstanding and the related unrecognized total compensation cost associated with these options was $1,506,667. This expense is expected to be recognized over a weighted-average period of 2.84 years.

Issuance of Restricted Common Stock and Stock Options for Directors’ and Executives’ 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.

In September 2014, 200,000 stock options were granted outside the 2010 Plan to the Senior Vice President of Operations as an inducement grant material to hiring a new employee in this position. The options have an exercise price of $1.86, 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 December 2014, 200,000 stock options were granted outside the 2010 Plan to the Vice President of European Commercial Operations as an inducement grant material to hiring a new employee in this position. The options have an exercise price of $.96 per share, 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.