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 September 4, 2014 and September 11, 2014, we granted incentive stock options for the purchase of 15,000 shares and 30,000 shares, respectively, of our common stock to two new employees. The options have an exercise price of $6.79 per share and $6.49 per share, respectively, with a term of ten years. The options vest quarterly over sixteen quarters. The options had an aggregate grant date fair value of $174,900 utilizing the Black-Scholes option valuation model.

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

	Option Grants Awarded During the Three Months Ended September 30, 2014	Option Grants Awarded During the Nine Months Ended September 30, 2014
Stock Price	$6.49 to $6.79	$6.00 to $7.20
Dividend Yield	0%	0%
Expected Volatility	56.6% - 57.5%	56.6% - 69.8%
Risk-free interest rate	2.46% - 2.56%	2.01% - 2.56%
Expected Life	7 years	6.93 to 7 years

Stock-based compensation expense related to stock options for both employees and non-employees was $98,108 and $559,684, for the three and nine months ended September 30, 2014, respectively, and was $0 for both the three and nine months ended September 30, 2013. For the three and nine months ended September 30, 2014, stock-based compensation related to stock options of $42,284 and $253,038, respectively, was reflected in research and development and $55,824 and $306,646, respectively, was reflected in general and administrative expenses on the accompanying condensed consolidated statements of operations. As of September 30, 2014, the unamortized portion will be expensed over a weighted average period of 3.2 years. We also recorded $46,751 and $96,263 of stock-based compensation related to the 5,145 and 10,174 restricted stock unit shares that vested during the three and nine months ended September 30, 2014, respectively. For the three and nine months ended September 30, 2014, stock-based compensation expense related to restricted stock unit shares of $32,346 and $65,171, respectively, was reflected in research and development and $14,405 and $31,092, respectively, was reflected in general and administrative expenses 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 nine months ended September 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	421,500	6.00		4.03		9.70	1,701,315
Exercised	—	—		—		—	—
Forfeited	—	—		—		—	—
Outstanding, September 30, 2014	421,500	$	6.00	$	4.03	9.70	$	1,701,315

Exercisable, January 1, 2014	—	$	—	$	—	—	$	—
Vested	124,892	6.00		4.01		9.70	559,684
Exercised	—	—		—		—	—
Forfeited	—	—		—		—	—
Exercisable, September 30, 2014	124,892	$	6.00	$	4.01	9.70	$	559,684

The following table presents information related to stock options outstanding and exercisable at September 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	9.67	124,572
6.49 – 6.79		45,000	9.94	—
7.20		12,500	9.75	320
		421,500	9.70	124,892

Stock-based compensation consists of the following:

	For the Three Months Ended September 30, 2014		For the Nine Months Ended September 30, 2014
Employees	$	107,248	$	381,356
Consultants/Advisors	48,241		274,533
	$	155,489	$	655,889