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Stockholders' Equity

12 Months Ended

Dec. 31, 2016

10. STOCKHOLDERS’ EQUITY

Series A Convertible Preferred Stock

In January 1997, the Board of Directors authorized the creation of a class of Series A Convertible Preferred Stock with a par value of $.01. The Series A Convertible Preferred Stock is convertible into an equal number of common shares at the holder’s option, subject to adjustment for anti-dilution. The holders of Series A Convertible Preferred Stock are entitled to receive dividends as and if declared by the Board of Directors. In the event of liquidation or dissolution of the Company, the holders of Series A Convertible Preferred Stock are entitled to receive all accrued dividends, if applicable, plus the liquidation price of $1.00 per share. As of December 31, 2016, and 2015, there were no outstanding shares of Series A Convertible Preferred Stock.

Stock Options and Share Based Compensation

In order to retain and attract qualified personnel necessary for the success of the Company, the Company adopted the 2015 Omnibus Incentive Plan (the “Plan”) covering up to 3,000,000 of the Company’s common shares, pursuant to which officers, directors, key employees and consultants to the Company are eligible to receive incentive stock options, nonqualified stock options and restricted stock units. All of the Plans prior to Company’s 2015 Omnibus Incentive Plan have been closed. The Compensation Committee of the Board of Directors administers this Plan and determines the terms and conditions of options granted, including the exercise price. This Plan generally provides that all stock options will expire within ten years of the date of grant. Incentive stock options granted under this Plan must be granted at an exercise price that is not less than the fair market value per share at the date of the grant and the exercise price must not be less than 110% of the fair market value per share at the date of the grant for grants to persons owning more than 10% of the voting stock of the Company. This Plan also entitles non-employee directors to receive grants of non-qualified stock options as approved by the Board of Directors.

The Company uses the Black-Scholes option pricing model to value the options. The table below presents the weighted average expected life of the options in years. The expected life computation is based on the time to option expiration. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The fair value of share-based payment units was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values as follows:

	Twelve Months Ended
	December 31,
	2016			2015
Valuation assumptions:
Grant price		$1.01 - $2.79			$1.15 - $1.56
Exercise price		$1.01 - $2.79			$1.15 - $1.56
Expected dividend yield		0	%		0	%
Expected volatility		96.77% - 98.05	%		95.5%-99.2	%
Expected life (in years)		5			5
Risk-free interest rate		0.94% - 2.10	%		1.37% - 1.62	%

Stock option activity under the Plans during the periods indicated below is as follows:

	Number of Shares Subject to Issuance			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at December 31, 2014		235,478		$	5.95		4.44 years	$	-

Granted		1,689,882		$	1.18
Forfeited or expired		(23,749	)		25.82
Exercised		(313	)		3.12
Outstanding at December 31, 2015		1,901,298		$	1.46		4.51 years	$	-

Granted		269,543		$	1.31
Forfeited or expired		(160,294	)		2.58
Exercised		(345,127	)		1.13
Outstanding at December 31, 2016		1,665,420		$	1.40		3.62 years	$	2,414,446

Exercisable at December 31, 2016		1,051,358		$	1.38		3.60 years	$	1,538,447

The following is a summary of stock options as of December 31, 2016:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options		Weighted- average Remaining Life		Weighted- average Exercise Price		Number of Options		Weighted- average Exercise Price
$1.15 to $1.56		1,493,298		3.66 years	$	1.16		969,236	$	1.16
$1.75 to $2.79		61,000		4.53 years	$	2.10		11,000	$	2.79
$3.12 to $5.68		111,122		2.63 years	$	4.19		71,122	$	4.11
		1,665,420		3.62 years	$	1.40		1,051,358	$	1.38

The weighted-average fair value of the options granted during the years ended December 31, 2016 and 2015 is $0.96 and $0.86, respectively.

As of December 31, 2016, the Company had 900,013 shares available for future grants under the Plans.

Restricted Stock Units

The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. The Company issues RSUs to certain directors as compensation which vest with the passage of time. The vesting of all RSUs is contingent on continued board services.

The compensation expense incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to general and administrative expense with a corresponding increase to additional paid-in capital.

	Number of Shares			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value

Outstanding at December 31, 2014		31,807		$	3.93	$	-

Granted		122,119			1.24
Vested and Settled in Shares		(86,849	)		1.98
Canceled / Expired		-			-
Outstanding at December 31, 2015		67,077			1.56	$	-

Granted		86,271			1.76
Vested and Settled in Shares		(120,634	)		1.60
Canceled / Expired		-			-
Outstanding at December 31, 2016		32,714		$	1.89	$	26,010

As of December 31, 2016, there was $507,727 of total unrecognized compensation cost, net of estimated forfeitures, related to all unvested stock options and restricted stock units, which is expected to be recognized over a weighted average period of approximately 1.8 years.

Share based compensation expense for the years ended December 31, 2016 and 2015 is as follows:

	Years Ended December 31,
Compensation cost recognized:	2016		2015
Stock options	$	775,338	$	686,797
Restricted stock units		160,561		191,315
	$	935,899	$	878,112

Share based compensation is included in operating expenses as follows:

	Years Ended December 31,
	2016		2015
General and administrative	$	873,392	$	829,208
Research and development		62,507		48,904
	$	935,899	$	878,112

The Company has a net operating loss carry-forward as of December 31, 2016, and no excess tax benefits for the tax deductions related to share based awards were recognized in the statements of operations. Additionally, no incremental tax benefits were recognized from stock options exercised in 2016 that would have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities.

All stock options have been issued with an exercise price that is equal or above the fair market value of the Company’s Common Stock on the date of grant.

Warrants

All previously granted warrants were issued with an exercise price that was equal to or above the fair market value of the Company’s common stock on the date of grant. As of December 31, 2016, the Company had 535,301 remaining warrants outstanding which are exercisable through 2019. As of December 31, 2016, 153,000 warrants were exercised at a price of $2.20 per share. No warrants were exercised in 2015.