December 2014 Private Placement

In December 2014, the Company entered into a securities purchase agreement for the private placement of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock, at a purchase price of $0.6435 per unit (the “December 2014 Financing Transaction”). Each unit consisted of one share of common stock and a warrant to purchase 0.4 share of common stock.

In the December 2014 Financing Transaction, the Company sold to the investors (the “Investors”) 15,812,808 shares of common stock, together with warrants to purchase 6,325,125 shares of common stock (the “Investor Warrants”), for aggregate gross proceeds of $10,175,550, before commissions and offering expenses. One non-employee director of the Company invested $15,000 in the December 2014 Financing Transaction. The Company’s placement agents earned cash commissions of $709,839, and the Company incurred other transaction costs of $85,831 related to the financing. In addition to the cash commission, the Company also issued warrants to the placement agents to purchase 1,106,896 shares of common stock (the “Placement Agent Warrants”).

The Investor Warrants and the Placement Agent Warrants are exercisable for five years from the date of issuance and have an exercise price of $0.858 per share, subject to adjustment from time to time for stock splits or combinations, stock dividends, stock distributions, recapitalizations and other similar transactions. The Investor Warrants contain a provision permitting the Company to redeem the warrants, to the extent then outstanding as of the redemption date, in the event the closing sale price of the Company’s common stock equals or exceeds twice the exercise price of the Investor Warrants for 20 consecutive trading days. Neither the Investor Warrants nor the Placement Agent Warrants contain any down round exercise price reset provision. Both the Investor Warrants and the Placement Agent Warrants are deemed to be indexed to the Company’s stock, and as such, the Company recorded the $9,379,880 of net proceeds from the December 2014 Financing Transaction as equity.

At the closing of the December 2014 Financing Transaction, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors. Pursuant to the Registration Rights Agreement, the Company was required to prepare and file a registration statement (the “Registration Statement”) with the SEC under the Securities Act covering the resale of the shares of common stock issued to the Investors under the securities purchase agreement and the shares of common stock underlying the Investor Warrants and the Placement Agent Warrants. The Company filed the Registration Statement on January 13, 2015 and the Registration Statement was declared effective on January 26, 2015. If the Company fails to continuously maintain the effectiveness of the Registration Statement (with certain permitted exceptions), the Company will incur certain liquidated damages to the Investors. The Registration Rights Agreement also contains mutual indemnifications by the Company and each Investor, which the Company believes are customary for transactions of this type.

In connection with the December 2014 Financing Transaction, the Company entered into derivative restriction agreements with each of its directors and executive officers. Under the derivative restriction agreements, each director and executive officer is prohibited from exercising his or her outstanding options and warrants for shares of common stock until the Company’s certificate of incorporation has been amended to provide a number of authorized shares sufficient to permit the Company to reserve shares of common stock for exercise of such options and warrants. Derivative restriction agreements were entered into with respect to 9,141,250 shares underlying outstanding options and warrants held by the Company’s directors and executive officers. The purpose of the derivative restriction agreements was to ensure a sufficient number of authorized, unissued and unreserved shares of common stock to enable the Company to consummate the December 2014 Financing Transaction.

January 2013 Private Placement

In January 2013, the Company entered into a securities purchase agreement for the private placement of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock, at a purchase price of $1.20 per unit (the “January 2013 Financing Transaction”). Each unit consisted of one share of common stock and a warrant to purchase 0.5 share of common stock.

In the January 2013 Financing Transaction, the Company sold to the investors 9,201,684 shares of common stock, together with warrants to purchase 4,600,842 shares of common stock, for aggregate gross proceeds of $11,042,021, before commissions and offering expenses. The Company’s placement agents earned commissions of $1,104,202, and the Company incurred other transaction costs of $133,024 related to the financing. Non-employee directors of the Company invested a total of $402,000 in the January 2013 Financing Transaction.

The warrants issued in the January 2013 Financing Transaction are exercisable for five years from the date of issuance and had an initial exercise price of $1.75 per share, subject to adjustment from time to time for stock splits or combinations, stock dividends, stock distributions, recapitalizations and other similar transactions. The warrants contain a down round exercise price reset provision stating that, in the event the Company issues shares of its common stock or common stock equivalents in a subsequent financing transaction at a price below the then prevailing warrant exercise price, then the exercise price of the warrants will be adjusted downward to the price at which the Company issues the common stock or common stock equivalents. As a result of the December 2014 Financing Transaction, the exercise price of the warrants issued in the January 2013 Financing Transaction has been adjusted to $0.64 per share.

In addition, the warrants contain a net-cash settlement feature that gives the warrant holder the right to net-cash settlement in the event certain transactions occur. Pursuant to the net-cash settlement provision of the warrants, if such a transaction occurs, the warrant holder will be entitled to receive cash equal to the value calculated under the Black-Scholes valuation model using (i) an expected volatility equal to the greater of 100% and the 100-day volatility obtained from the HVT function on Bloomberg, (ii) an expected term equal to the remaining term of the warrant, and (iii) an interest rate equal to the United States Treasury risk-free rate for the term of the lesser of the remaining term of the warrant or twenty-four months.

Common Stock Warrants Requiring Liability Accounting

The net-cash settlement and down round provisions contained in the warrants issued in the January 2013 Financing Transaction require derivative liability accounting treatment for the warrants. Likewise, a down round provision contained in the terms of warrants issued by the Company in a 2012 financing transaction also requires derivative liability accounting treatment for those warrants. The fair value of all such warrants was calculated using the Monte Carlo simulation valuation method.

Assumptions used in calculating the fair value of the warrants are noted below:

In addition to the assumptions above, the Company also takes into consideration whether or not it would participate in another round of equity financing and, if so, what that stock price would be for such a financing at that time.

The fair values and the changes in fair values of the warrants accounted for as derivative liabilities are reflected below:

Stock Incentive Plans

The Company has various share-based compensation plans and share-based compensatory contracts (collectively, the “Plans”). The Plans provide for the granting of share-based awards, such as incentive and non-qualified stock options, to employees, directors, consultants and advisors, and some of the Plans provide for cash-based awards. Awards may be subject to a vesting schedule as set forth in each individual award agreement.

In June 2013, the stockholders of the Company approved the 2013 Incentive Compensation Plan (the “2013 Plan”). Upon stockholder approval of the 2013 Plan, the Company ceased making awards under a previous plan. A total of 1,250,000 shares of the Company’s common stock are reserved for issuance under the 2013 Plan, of which awards as to 1,038,167 shares were outstanding as of December 31, 2014. Thus, awards as to 211,833 shares remained available for grants under the 2013 Plan as of December 31, 2014.

In December 2013, the Company’s board of directors approved the 2013 Non-Employee Director Equity Incentive Plan (the “Director Plan”). A total of 570,000 shares of the Company’s common stock are reserved for issuance under the Director Plan. The shares reserved for issuance under the Director Plan are intended to be used to cover the stock options granted pursuant to the terms of the Company’s Non-Employee Director Compensation Plan. As of December 31, 2014, awards for 295,000 shares had been issued under the Director Plan. Therefore, 275,000 shares remained available for awards under the Director Plan as of December 31, 2014.

Activity with respect to stock options issued by the Company is summarized as follows:

The following table summarizes information about stock options at December 31, 2014 (contractual life expressed in years):

The weighted average grant date fair value of options granted during the years ended December 31, 2013 and 2014 was $0.63 and $0.54, respectively. A summary of the status of the Company’s nonvested stock options during the years ended December 31, 2013 and 2014 is presented below:

As of December 31, 2014, there was a total of approximately $2,045,000 of unrecognized compensation cost related to share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of approximately 2.3 years.

The assumptions used in calculating the fair value under the Black-Scholes option-pricing model are set forth in the following table for options issued by the Company during the:

Warrants

Outstanding warrants relate primarily to warrants issued in connection with financings. Warrants have been issued for terms of up to five years. Common stock warrants issued, expired and outstanding during the years ended December 31, 2013 and 2014 are as follows:

The following table summarizes information about outstanding warrants at December 31, 2014 (contractual life expressed in years):