NOTE

– STOCK-BASED COMPENSATION PLANS AND WARRANTS

The Company has issued options and has granted stock awards pursuant to its

2009

Equity Incentive Plan and

2014

Equity Incentive Plan, as described below.

2009

Equity Incentive Plan

The

2009

Equity Incentive Plan was approved by stockholders at the

2009

Annual Meeting. The plan provides for the grant and issuance of up to

850,000

shares and options to the Company’s employees and consultants. The plan became effective when the Company filed a registration statement on Form S-

December

18,

2009.

All options issued under the

2009

Equity Incentive Plan have a

ten

-year term with vesting periods ranging from issuance date to

months. As of

December

31,

2016,

507,500

common stock options remain outstanding under this plan.

2014

Equity Incentive Plan

The

2014

Equity Incentive Plan was approved by stockholders at the

June

10,

2014

Annual Meeting. The plan provides for the grant and issuance of up to

675,000

shares and options to the Company’s employees, directors and consultants. Upon approval of the

2014

Equity Incentive Plan, all shares of common stock that remained available for award under the

2009

Equity Incentive Plan were cancelled. Following registration of the

2014

Plan on Form S-

the Company entered into revised employment agreements with certain senior management that provide for the issuance of up to

162,500

Restricted Stock Units (“RSU’s”) during the period

July

2014

through

December

31,

2016

and the issuance of up to

200,000

RSU’s in connection with obtaining construction financing for the Water Project. As of

December

31,

2016,

162,500

of the RSUs granted on

July

2014

pursuant to these employee agreements are vested.

Under the

2014

Equity Incentive Plan, each outside director receives

$30,000

of cash compensation and receives a deferred stock award consisting of shares of the Company’s common stock with a value equal to

$20,000

June

of each year. The award accrues on a quarterly basis, with

$7,500

of cash compensation and

$5,000

of stock earned for each fiscal quarter in which a director serves. The deferred stock award vests automatically on

January

in the year following the award date.

All options that have been issued under the above plans have been issued to officers, employees and consultants of the Company. In total, options to purchase

507,500

shares were unexercised and outstanding on

December

31,

2016,

under the

2009

and

2014

equity incentive plans.

For consultants of the Company, the fair value of each option granted under the

2009

Equity Incentive Plan is estimated at each reporting period using the Black-Scholes option pricing model and recorded as a liability until the award is settled.

For officers and employees of the Company, the fair value of each option granted under the plans was estimated on the date of grant using the Black-Scholes option pricing model.

The risk-free interest rate is assumed to be equal to the yield of a U.S. Treasury bond of comparable maturity, as published in the Federal Reserve Statistical Release for the relevant date. The expected life estimate is based on an analysis of the employees receiving option grants and the expected behavior of each employee. The expected volatility is derived from an analysis of the historical volatility of the trading price per share of the Company’s common stock on the NASDAQ Global Market. The Company does not anticipate that it will pay dividends to common stockholders in the future.

The Company recognized no stock-option-related compensation costs for the years ended

December

31,

2014,

2015

and

2016

relating to these options. No stock options were exercised during

2016.

No options were granted in

2016,

2015

and

2014.

A summary of option activity under the plans as of

December

31,

2016,

and changes during the years ended

December

31,

2015

and

2014

are presented below:

	Shares			Weighted- Average Exercise Price		Average Remaining Contractual Term		Aggregate Intrinsic Value ($000’s)

Outstanding at January 1, 2014		842,500		$	11.84		4.5	$	7,316
Granted		-		$	-
Forfeited, Expired or canceled		(20,000	)	$	12.60		-	$	135
Exercised		-		$	-

Outstanding at December 31, 2014		822,500		$	11.82		3.4	$	7,181
Granted		-		$	-
Forfeited, Expired or canceled		(315,000	)	$	12.09			$	3,247
Exercised		-		$	-

Outstanding at December 31, 2015		507,500		$	11.66		4.3	$	3.934
Granted		-		$	-
Forfeited, Expired or canceled		-		$	-
Exercised		-		$	-

Outstanding at December 31, 2016		507,500	(a)	$	11.66		3.3	$	3,394

Options exercisable at December 31, 2016		507,500		$	11.66		3.3	$	3,394

Weighted-average years of remaining contractual life of options outstanding at December 31, 2016		3.3

(a)

Exercise prices vary from

$9.88

$12.51,

and expiration dates vary from

January

2020

December

2021.

Stock Awards to Directors, Officers, Consultants and Employees

The Company has granted stock awards pursuant to its

2009

Equity Incentive Plan and

2014

Equity Incentive Plan.

Of the total

850,000

shares reserved under the

2009

Equity Incentive Plan,

115,000

restricted shares of common stock were granted on

January

14,

2010,

and

140,000

restricted shares of common stock were granted on

January

10,

2011.

Of the remaining

595,000

shares reserved under the

2009

Equity Incentive Plan,

42,265

shares of common stock were awarded to directors and

507,500

were issued as options as described above as of

December

31,

2016.

Upon approval of the

2014

Equity Incentive Plan in

June

2014,

45,235

shares remaining available for award under the

2009

Equity Incentive Plan were cancelled.

Under the

2014

Equity Incentive Plan,

208,186

shares have been awarded to the Company’s directors, consultants and employees. Of the

208,186

shares awarded,

17,365

shares were awarded for service during the plan year ended

June

30,

2016,

became effective on that date and vested on

January

31,

2017.

The accompanying consolidated statements of operations and comprehensive loss include approximately

$1,296,000,

$1,116,000

and

$1,077,000

of stock-based compensation expense related to stock awards in the years ended

December

31,

2016,

2015

and

2014,

respectively.

A summary of stock awards activity under the plans during the years ended

December

31,

2016

and

2015

is presented below:

				Weighted-
				Average
				Grant-date
	Shares			Fair Value


Nonvested at December 31, 2014		144,514		$	8.50
Granted		87,945		$	6.37
Forfeited or canceled		-		$	-
Vested		(155,609	)	$	7.27

Nonvested at December 31, 2015		76,850		$	8.54
Granted		84,383		$	7.23
Forfeited or canceled		-		$	-
Vested		(143,868	)	$	8.11

Nonvested at December 31, 2016		17,365		$	5.76