STOCKHOLDERS' EQUITY

Preferred Stock

In December 2014, the Company amended and restated its articles of incorporation to reduce the total number of authorized shares of preferred stock. The amended and restated articles of incorporation authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the Board of Directors.

Common Stock

Shelf Registration

On July 29, 2015, the Company’s registration statement on Form S-3, as filed with the SEC on July 23, 2015, was declared effective using a “shelf” registration process. Under this shelf registration statement, the Company may issue, in one or more offerings, any combination of Common Stock, preferred stock, senior or subordinated debt securities, warrants, or units, up to a total dollar amount of $100 million.

November 4, 2015 Controlled Equity Offering

On November 4, 2015, the Company entered into a Controlled Equity Offering^SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald and Co., as agent (“Cantor”), pursuant to which the Company may offer to sell, from time to time through Cantor, shares of the Company’s Common Ctock, having an aggregate offering price of up to $25,000,000 (the “Shares”) Any Shares offered and sold will be issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-205806), and the related prospectus previously declared effective by the Securities and Exchange Commission (the “SEC”) on July 29, 2015 (the “Registration Statement”), as supplemented by a prospectus supplement, dated November 4, 2015, which the Company filed with the SEC pursuant to Rule 424(b)(5) under the Securities Act.

Under the Sales Agreement, Cantor may sell Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including sales made directly on The NASDAQ Capital Market, on any existing trading market for the Common Stock or to or through a market maker. In addition, under the Sales Agreement, Cantor may sell the Shares by any other method permitted by law, including in privately negotiated transactions. The Company may instruct Cantor not to sell Shares if the sales cannot be effected at or above the price designated by the Company from time to time.

The Company is not obligated to make any sales of Shares under the Sales Agreement, and if it elects to make any sales, the Company can set a minimum sales price for the Shares. The offering of Shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all the shares subject to the Sales Agreement and (b) the termination of the Sales Agreement by Cantor or the Company, as permitted therein. Since it was established on November 4, 2015 through September 30, 2016, the Company sold 28,880 shares at an average selling price of $8.02 per share, generating net proceeds of approximately $225,000 under the Sales Agreement. There were no sales during the nine months ended September 30, 2016.

The Company pays a commission rate of 3.0% of the aggregate gross proceeds from each sale of Shares and has agreed to provide Cantor with customary indemnification and contribution rights. The Company has also reimbursed Cantor $50,000 for certain specified expenses in connection with entering into the Sales Agreement.

The Company intends to use the net proceeds raised through “at the market” sales for research and development activities, which include the funding of additional clinical studies and costs of obtaining regulatory approvals in countries not covered by the CE Mark, capital expenditures and other costs necessary to expand production capacity, support of various sales and marketing efforts, product development and general working capital purposes.

January 14, 2015 Public Offering

On January 14, 2015, the Company closed an underwritten public offering (“Offering”) consisting of 1,250,000 shares of Common Stock at a price of $8.25 per share for an aggregate price of $10,312,500. The Company received net proceeds from the Offering of approximately $9,409,000. The net proceeds received by the Company from the Offering are being used to fund clinical studies, expand production capacity, support various sales and marketing efforts, product development and general working capital purposes.

The Company conducted the Offering pursuant to a registration statement on Form S-1 (File No. 333-199762), which was declared effective by the SEC on January 8, 2015. The Company filed a final prospectus on January 9, 2015, disclosing the final terms of the Offering.

In connection with the Offering, on January 8, 2015, the Company entered into underwriting agreements with Brean Capital, LLC and H.C. Wainwright & Co., LLC (“Representatives”), who acted as book-running managers and as representatives of the underwriters in the Offering.

In connection with the successful completion of the Offering, the underwriters received aggregate discounts and commissions of 6% of the gross proceeds of the sale of the shares in the Offering. In addition, the Company agreed to issue warrants to the Representatives (“Representatives’ Warrants”) that allow for the purchase of 30,000 shares of the Company’s Common Stock. The Representative Warrants had a fair value of approximately $30,000 on the date of the closing. The Representatives’ Warrants are exercisable at any time for a period of five years, commencing on the date of the effectiveness of the registration statement, at a price per share equal to 120% of the public offering price per share of the Common Stock in the Offering. The Company also agreed to reimburse the underwriters for actual out-of-pocket expenses related to the Offering, which amounted to approximately $85,000. The Company also granted the Representatives a right of first refusal to participate in any subsequent offering or placement of the Company’s securities that takes place within nine months following the effective date of the registration statement.

Stock-Based Compensation

Stock Options:

Total share-based employee, director, and consultant compensation for the three months and nine months ended September 30, 2016 and 2015 amounted to approximately $124,000 and $114,000 and $599,000 and $260,000, respectively. These amounts are included in the statement of operations under the captions research and development ($29,000 and $45,000 for the three months ended September 30, 2016 and 2015, and $121,000 and $79,000 for the nine months ended September 30, 2016 and 2015) and selling, general and administrative ($95,000 and $69,000 for the three months ended September 30, 2016 and 2015, and $478,000 and $181,000 for the nine months ended September 30, 2016 and 2015).

The summary of the stock option activity for the nine months ended September 30, 2016 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining
			Exercise Price		Contractual
	Shares		per Share		Life (Years)
Outstanding, December 31, 2015		2,477,279	$	6.56		6.2
Granted		1,034,219		4.68		9.7
Forfeited		(500,150)		8.04		8.5
Expired		(19,757)		121.85		—
Exercised		(25,200)		3.17		3.6
Outstanding, September 30, 2016		2,966,391	$	4.92		6.4

The fair value of each stock option was estimated using the Black Scholes pricing model which takes into account as of the grant date the exercise price (ranging from $3.67 to $6.07 per share) and expected life of the stock option (10 years), the current price of the underlying stock and its expected volatility (ranging from 66.8% to 68.7%), expected dividends (-0-%) on the stock and the risk free interest rate (1.24% to 1.81%) for the term of the stock option.

The aggregate intrinsic value is calculated at the difference between the market value as of September 30, 2016 of $6.40 and the exercise price of the shares.

Options Outstanding

Number

Weighted

Range of

Outstanding at

Average

Aggregate

Exercise

September 30,

Exercise

Remaining

Intrinsic

Price

2016

Price

Life (Years)

Value

$0.88 - $166.00

2,966,391

4.92

6.40

6,253,743

Options Exercisable
Number		Weighted
Exercisable at		Average		Aggregate
September 30,		Exercise		Intrinsic
2016		Price		Value
	1,843,524	$	4.99	$	4,394,350

The summary of the status of the Company’s non-vested options for the nine months ended September 30, 2016 is as follows:

			Weighted
			Average
			Grant Date
	Shares		Fair Value

Non-vested, January 1, 2016		794,708	$	2.72
Granted		1,034,219		2.71
Forfeited		(499,650)		3.30
Vested		(206,410)		1.04
Non-vested, September 30, 2016		1,122,867	$	2.54

As of September 30, 2016, the Company had approximately $399,000 of total unrecognized compensation cost related to stock options, which will be amortized over a weighted average period of approximately nine months. In April 2015, the Board of Directors granted options to purchase 566,000 shares of Common Stock to the Company’s employees which options would only vest upon achievement of certain specific, predetermined milestones related to 2015 operating performance. The grant date fair value of these unvested options amounted to approximately $1,388,000. On June 7, 2016, based upon the finalization of its review of the Company’s progress to meeting the predetermined milestones, the Board of Directors determined that 72,400 of these options would immediately vest. Accordingly, a $241,000 charge related to these options has been recorded in the consolidated statements of operations for the nine months ended September 30, 2016.

In addition, on June 7, 2016, the Board of Directors granted options to purchase 900,100 shares of Common Stock to the Company’s employees which will vest upon the achievement of certain specific, predetermined milestones related to the Company’s 2016 operations. The grant date fair value of these unvested options amounted to approximately $2,437,000. Due to uncertainty over whether these options will vest, which only occurs if the Company meets the predetermined milestones, no charge for these options has been recorded in the consolidated statements of operations for three and nine month periods ended September 30, 2016.

In April 2015, the Board of Directors also granted 960,000 restricted stock units, valued at $7,747,200, to Company employees and 240,000 restricted stock units, valued at $1,936,000, to the members of the Board of Directors, which will only vest upon a Change in Control of the Company, as defined in the Company’s 2014 Long-Term Incentive Plan (a “Change in Control”). Of these restricted stock units granted to Company employees in April 2015, 75,000 have been forfeited. In June 2016, the Board of Directors granted an additional 414,000 restricted stock units to Company employees, valued at $1,941,660 at the time of issuance, which will only vest upon a Change in Control, bringing the total amount of restricted stock units outstanding to 1,539,000. Due to the uncertainty over whether these restricted stock units will vest, which only happens upon a Change in Control, no charge for these restricted stock units has been recorded in the consolidated statement of operations for the three months and nine months ended September 30, 2016.

Performance Based Stock Awards:

Pursuant to a review of the compensation of the senior management of the Company, on June 7, 2016, the Board of Directors granted 80,000 restricted stock units to certain senior managers of the Company. These awards were valued at $375,200 at the date of issuance, based upon the market price of the Company’s Common Stock at the date of the grant, and vest one third on the date of the grant, one third on the first anniversary of the date of the grant, and one third on the second anniversary of the date of the grant. These awards are charged to expense at their fair value on each vesting date. For the nine months ended September 30, 2016, the Company recorded a charge of approximately $125,000 related to the vested portion of these restricted stock unit awards. The following table outlines the restricted stock unit activity for the nine months ended September 30, 2016:

			Weighted
			Average
			Grant Date
	Shares		Fair Value

Non-vested, January 1, 2016		-	$	-
Granted		80,000		4.69
Vested		(26,665)		4.69
		53,335	$	4.69

Warrants:

As of September 30, 2016, the Company has the following warrants to purchase common stock outstanding:

Number of Shares		Warrant Exercise		Warrant
To be Purchased		Price per Share		Expiration Date
	9,605	$	31.250		October 24, 2016
	40,001	$	4.375		February 10, 2017
	117,600	$	3.750		June 21, 2018
	110,000	$	3.125		September 30, 2018
	48,960	$	7.500		March 11, 2019
	736,000	$	7.8125		March 11, 2019
	30,000	$	9.900		January 14, 2020
	1,092,166