Note 7 – Equity

In January 2014, the Company completed the final tranche of a private placement of the Company’s common stock and warrants and received approximately $3.3 million total gross proceeds from accredited investors (“2014 Closing”). The Company paid its placement agent total cash fees of approximately $395,000 and paid attorney fees of $40,000 for their services resulting in net proceeds of $2,873,557. In the 2014 Closing, the Company sold 551,810 shares of common stock at $6.00 per share and granted 137,952 units of five-year warrants with an exercise price of $9.00 per share. The warrants are exercisable for a period of five years from the date of issuance. The transaction date fair value of the warrants of $0.6 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: risk free interest rateh1.64%, expected volatility - 88%, expected dividend yield - 0%, and a contractual life of 5 years. As of June 30, 2014, all the warrants were outstanding.

On March 24, 2014, the Company filed a shelf registration statement on Form S-3 (the “Registration Statement”) which was effective on April 17, 2014. This Registration Statement contained two prospectuses: (i) a base prospectus which covers the offering, issuance and sale by the Company of up to $200,000,000 of its common stock, preferred stock, warrants and/or units; and (ii) a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $75,000,000 of its common stock that may be issued and sold under a sales agreement (the “Sales Agreement”) with MLV & Co. LLC (“MLV”) dated March 24, 2014. The Company will pay MLV in cash, upon the sale of common stock pursuant to the Sales Agreement, an amount equal to 3.0% of the gross proceeds from the sale of common stock. On April 28, 2014 the Company issued 500 shares and received net proceeds of $6,000 under the Sales Agreement with MLV.

Placement Agent – During January 2014, in connection with the Common Stock Offering, the Company issued the Placement Agent warrants to purchase an aggregate of 68,976 shares of common stock with an exercise price of $9.00 per share. The transaction date fair value of the warrants of $0.2 million was determined utilizing the Black-Scholes option pricing model utilizing the following assumptions: risk free interest rate – 1.64%, expected volatility - 88%, expected dividend yield - 0%, and a contractual life of 5 years.

Public Offering - On June 30, 2014, the Company received gross proceeds of $12,525,000. The Company paid an underwriting discount of $876,750, paid the other offering expenses of $125,000, and paid attorney and auditor fees of $72,000 resulting in net proceeds of $11,451,250 from the public offering of 1,670,000 shares of the Company’s common stock, $0.001 par value per share at a price to the public of $7.50 per share less underwriting discounts. Under the terms of the underwriting agreement, the Company also granted the Underwriters a 30-day option to purchase up to an additional 250,000 shares of common stock to cover over-allotments, if any, at the offering price.

Approval of the Equity Incentive Plan

During the six months ended June 30, 2013, the Company did not grant any shares of restricted stock. During the six months ended June 30, 2014, the Company granted 445,167 shares of restricted stock and cancelled 50,000 shares of restricted stock. Of the total shares of restricted stock, 20,000 shares vest 3 months from the grant date, 22,500 shares vest 1 year from the grant date, 199,167 shares have a vesting period of 4 years and 200,000 shares vest at date of grant. The remaining restricted shares granted are performance based and upon the achievement of certain milestones.

Stock Option Plan

The following is a summary of stock options activities for the six months ended June 30, 2014:

During the six months ended June 30, 2014, the Company granted employees and board members 979,100 options to purchase the Company’s common stock with exercise prices ranging from $5.55 to $11.95 and a term of 10 years and with vesting over a 4-year period. The options have a fair value of $7.1 million that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 1.88% - 2.07% (2) expected life of 6 years, (3) expected volatility of 87.06% to 87.76%, and (4) zero expected dividends.

During six months ended June 30, 2014, the Company received gross proceeds of $5,220 for exercise of options for 11,655 shares of the Company’s common stock.

All options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at June 30, 2014 was $10,165,000. During the three months ended June 30, 2014 and 2013, the Company recorded option expense of $607,791 and $94,200, respectively. During the six months ended June 30, 2014 and 2013, the Company recorded option expense of $889,195 and $188,400, respectively.

Warrants

Following is a summary of warrant activities for the six months ended June 30, 2014:

During the six months ended June 30, 2014, the Company granted warrants to purchase 137,952 shares of the Company’s common stock to investors and warrants to purchase 68,976 shares of the Company’s common stock to its placement agent in connection with the 2014 Closing.

During the six months ended June 30, 2014, the Company also granted consultants warrants to purchase 200,000 shares of the Company’s common stock with exercise prices ranging from $5.55 to $11.66 per share and a term of 10 years. These warrants vest when certain milestones are met.

During the six months ended June 30, 2014, 662,160 warrants were exercised by the warrant holders. The Company issued 573,299 shares of common stock and received gross proceeds of $96,868.

During the six months ended June 30, 2014 and 2013, the Company recorded stock-based compensation related to the warrants of $98,224 and $0, respectively.