2007 Equity Incentive Plan

The Company adopted an equity incentive plan (the “2007 Plan”) in 2007 under which 53,599,046 shares of common stock have been reserved for issuance to employees, nonemployee directors and consultants of the Company. Recipients of incentive stock options shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2007 Plan is ten years. The options generally vest 25% after one year, with the balance vesting monthly over the remaining three years. As of December 31, 2014, 32,822,534 shares of common stock remain available for future grant under the 2007 Plan.

The following table summarizes stock option transactions for the 2007 Plan for the years ended December 31, 2013 and 2014:

The Company recognizes compensation expense using a fair-value-based method for costs related to stock-based payments, including stock options. The fair value of options awarded to employees is measured on the date of grant using the Black-Scholes option pricing model and is recognized as expense over the requisite service period on a straight-line basis.  The Black-Scholes option pricing model includes the following weighted average assumptions:

In the merger with RFS Pharma, the Company issued 16,542,538 options with a weighted average exercise price of $0.10 per share in exchange for RFS options then outstanding.  These were the only options issued in 2014.  The weighted average fair value of options granted during 2014 and 2013 was $0.45 and $0.17, respectively.

The Company uses historical data to estimate forfeitures at the time of grant and is required to record stock-based compensation only for those awards that are expected to vest. The Company recorded employee stock-based compensation expense of $37,578 and $55,483 for the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014, there was $885,325 of total unrecognized compensation expense related to non-vested employee stock options that is expected to be recognized over a weighted average period of 1.8 years.

As of December 31, 2014, options to purchase 19,600,112 shares of common stock, with an aggregate intrinsic value of $6,272,000, were outstanding that were fully vested or expected to vest with a weighted average remaining contractual term of 4.9 years. As of December 31, 2014, options to purchase 17,125,790 shares of common stock, with an aggregate intrinsic value of $5,549,000, were exercisable with a weighted-average exercise price of $0.10 per share and a weighted-average remaining contractual term of 4.4 years. The aggregate intrinsic value of outstanding and exercisable options at December 31, 2014 was calculated based on the closing price of the Company’s common stock as reported on the Over-the-Counter Bulletin Board and the OTCQx markets on December 31, 2014 of $0.42 per share less the exercise price of the options. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.

In 2008 and 2009, the Company granted options to purchase 1,941,544 shares of common stock to nonemployees at an exercise price of $0.10 per share. The assumptions used to calculate the fair value of nonemployee options were the same as the employee assumptions except the expected life is considered to be 6.02 years. The Company recorded stock-based compensation expense related to these options of $0 and $4,395 in 2014 and 2013, respectively. As of December 31, 2014, there were 1,941,112 outstanding nonemployee options at an exercise price of $0.10 per share and all of these options were fully vested.

Common Stock Reserved for Future Issuance