NOTE 6 — STOCK BASED COMPENSATION

2014 Omnibus Incentive Plan

In January 2014, our board of directors approved the 2014 Omnibus Incentive Plan and amended and restated the plan in March 2014. Our stockholders approved the Amended and Restated 2014 Omnibus Incentive Plan, or the 2014 Plan, in March 2014. Our 2014 Plan permits for the issuance of equity based instruments covering up to an initial total of 1,400,000 shares of common stock.

Option Valuation

We have computed the fair value of options granted using the Black-Scholes option valuation model. Option forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The expected term used for options issued to non-employees is the contractual life and the expected term used for options issued to employees is the estimated period of time that options granted are expected to be outstanding. We utilized the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. Since our stock has not been publicly traded for a sufficiently long period of time, we are utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

Stock Options

On May 28, 2014, our board of directors granted to various employees, board of directors and consultants from the 2014 Omnibus Incentive Plan, stock options to purchase an aggregate of 364,000 shares of our common stock at an exercise price of $6.00 per share with a term of ten years. The options granted to employees were incentive stock options and had an aggregate grant date fair value of $1.2 million utilizing the Black-Scholes option valuation model. Our board of directors also issued restricted stock units for the purchase an aggregate of 174,500 shares of our common stock. The options had an aggregate grant date fair value of $1,122,800 utilizing the Black-Scholes option valuation model.

On June 30, 2014, we granted incentive stock options for the purchase of 12,500 shares of our common stock to two new employees. The options have an exercise price of $7.20 per share with a term of ten years. The options vest quarterly over sixteen quarters for one grant and for the other grant, vest 25% at the end of twelve months from the grant date and quarterly thereafter for the next twelve quarters. The options had an aggregate grant date fair value of $65,638 utilizing the Black-Scholes option valuation model.

We estimated the fair value of stock options awarded during the three and six months ended June 30, 2014 using the Black-Scholes option valuation model. The fair values of stock options granted were estimated using the following assumptions:

		Option Grants Awarded During the Three Months Ended June 30, 2014
Stock Price		$6.00 to $7.72
Dividend Yield		0%
Expected Volatility		69.8%
Risk-free interest rate		2.010%
Expected Life		6.93 to 7 years

Stock-based compensation expense related to stock options for both employees and non-employees was $461,576, for both the three and six months ended June 30, 2014 and was $0 for both the three and six months ended June 30, 2013. For the three and six months ended June 30, 2014, stock-based compensation related to stock options of $210,754 and $250,822 was reflected in research and development and general and administrative expenses, respectively, on the accompanying condensed consolidated statements of operations. As of June 30, 2014, the unamortized value of options held by employees was $938,800. As of June 30, 2014, the unamortized portion will be expensed over a weighted average period of 3.53 years. We also recorded $38,824 of stock-based compensation related to the 5,029 restricted stock unit shares that vested during the three and six months ended June 30, 2014. For the three and six months ended June 30, 2014, stock-based compensation related to restricted stock unit shares of $24,341 and $14,483 was reflected in research and development and general and administrative expenses, respectively, on the accompanying condensed consolidated statements of operations. The shares issued were net of employee related withholding taxes paid with shares.

Stock Option Award Activity

The following is a summary of our stock option activity during the three and six months ended June 30, 2014:

	Number of Options	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Life In Years	Value
Outstanding, January 1, 2014	—	$	—	$	—	—	$	—
Granted	376,500	6.00		4.01		9.91	1,525,415
Exercised	—	—		—		—	—
Forfeited	—	—		—		—	—
Outstanding, June 30, 2014	376,500	$	6.00	$	4.01	9.91	$	1,525,415

Exercisable, January 1, 2014	—	$	—	$	—	—	$	—
Vested	106,891	6.00		4.01		—	461,576
Exercised	—	—		—		—	—
Forfeited	—	—		—		—	—
Exercisable, June 30, 2014	106,891	$	6.00	$	4.01	9.91	$	461,576

The following table presents information related to stock options outstanding and exercisable at June 30, 2014:

Options Outstanding			Options Exercisable
Exercise Price		Outstanding Number of Options	Weighted Average Remaining Life In Years	Exercisable Number of Options
$	6.00	364,000	9.91	106,891
7.20		12,500	10.0	—
		376,500	9.91	106,891

Stock-based compensation consists of the following:

	For the Three and Six Months Ended June 30, 2013		For the Three and Six Months Ended June 30, 2014
Employees	$	—	$	274,108
Consultants/Advisors	—		226,292
	$	—	$	500,400