Note 7 - Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Notes

Note 7 - Stockholders' Equity

NOTE 7 – STOCKHOLDERS’ EQUITY

Preferred Stock

Our Amended and Restated Articles of Incorporation allow us to issue up to 10,000,000 shares of preferred stock without further stockholder approval and upon such terms and conditions, and having such rights, preferences, privileges, and restrictions as the Board of Directors may determine.  No preferred shares are currently issued and outstanding.

Common Stock

2014 Unit Offerings

During the first quarter of 2014 we received gross proceeds of $275,000 from accredited investors at a price of $1.00 per unit and issued 275,000 shares of common stock and two-year warrants to purchase 275,000 shares of common stock at an exercise price of $1.25 per share.

The net proceeds of $275,000 were allocated based on the relative fair values of the common stock and the warrants on the dates of issuance.  The amount allocated to the fair value of the warrants was $76,454 and the balance of the proceeds of $198,546 was allocated to the common stock.  The fair value of the warrants issued was computed using the Black Scholes Option Pricing model using the following assumptions – expected life – 2 years, risk free interest rate – 0.31% to 0.45%, volatility – 79.0% to 97.4%, and an expected dividend rate of 0%.

Issuances of common stock

During the three months ended March 31, 2014 we issued 275,000 shares of common stock in our unit offerings described above.

Stock and Stock Options issued and exercised pursuant to the 2007 Stock Incentive Plan

On August 26, 2013 the board of directors increased the number of shares authorized for issuance under the 2007 Stock Incentive Plan (the “Plan”) by 1,500,000 shares to a total of 2,500,000 shares.  The increase in shares is subject to shareholder approval of the amendment to the Plan.

Stock issuances

There were no issuances of stock from the Plan for the three months ended March 31, 2014.

We recognized a total of $101,582 and $264,482 of compensation expense related to restricted stock issuances as general and administrative and research and development expenses for the three months ended March 31, 2014 and 2013, respectively.

At March 31, 2014 there are 70,677 shares of unvested restricted stock representing $85,208 of unrecognized compensation expense of which we anticipate will be recognized in the second quarter of 2014.

Stock Option issuances

On February 11, 2014 we issued a five-year option to purchase 13,158 shares of common stock from the Plan at an exercise price of $1.14 per share to a consultant for services.  The fair value of the option granted of $9,558 was calculated using the Black-Scholes option valuation model with the following assumptions – expected life – 5 years, risk free interest rate – 1.54%, volatility – 79.0%, and an expected dividend rate of 0%.

We recognized compensation expense of $28,019 and $230,065 related to the vested portion of stock options based on their estimated grant date fair value as research and development expense or general and administrative expense based on the specific recipient of the award for the three months ended March 31, 2014 and 2013, respectively.

At March 31, 2014, we have unrecognized compensation expense related to stock options of $8,363, of which we anticipate $7,170 will be recognized through December 31, 2014 and $1,193 will be recognized in 2015.

During the three months ended March 31, 2014, options to purchase 152,722 shares of common stock at a weighted average exercise price of $10.42 per share expired unexercised.

Warrants

During the three months ended March 31, 2014 we issued three year warrants to purchase 275,000 shares of common stock at an exercise price of $1.25 per share in our unit offering described above.

A summary of our outstanding warrants at March 31, 2014 is as follows:

		Weighted-Average
Exercise	Warrants	Remaining Contractual	Number
Price	Outstanding	Life (Years)	Exercisable
$1.25	925,000	1.7	925,000
$1.50	2,909,360	1.4	2,909,360
$2.00	580,667	2.2	580,667
$9.00	262,750	1.9	262,750
$11.00	156,071	1.6	156,071
$13.00	213,380	2.2	213,380
	5,047,228	1.6	5,047,228