(6) Shareholders' Equity

(a) Common Stock and Warrants

During 2015 and 2014, the Company received proceeds of $548,475 and $304,788 in connection with the exercise of options and warrants representing 119,381 and 64,800 shares of common stock, respectively.

In May 2014, under an existing shelf registration statement, the Company sold 750,000 shares of common stock to a current institutional shareholder, Kevin Douglas and his related parties. Net proceeds from the offering were $3,278,250 which the Company intends to use for working capital and general corporate purposes.

(b) Options and Warrants

(i) Employee Options

In 2008, the shareholders approved the Company's 2008 Equity Incentive Plan which provides for the granting of both incentive stock options at the fair market value at the date of grant and nonqualified stock options at the fair market value at the date of grant to employees or non-employees who, in the determination of the Board of Directors, have made or may make significant contributions to the Company in the future. The Company may also award stock appreciation rights, restricted stock, or restricted stock units under this plan. The Company initially reserved 750,000 shares of its common stock for issuance under this plan, and 173,942 options and other awards were available for issuance under this plan as of December 31, 2015.

At the discretion of the Board of Directors, options expire in ten years or less from the date of grant and are generally fully exercisable upon grant but in some cases may be subject to vesting in the future. Full payment of the exercise price may be made in cash or in shares of common stock valued at the fair market value thereof on the date of exercise, or by agreeing with the Company to cancel a portion of the exercised options.

The Company granted 499,700 fully vested options during 2013 and recorded share-based compensation of $1,431,620. The Company granted 209,750 fully vested options during 2014 and recorded share-based compensation of $483,915. The Company granted 204,000 fully vested options during 2015 and recorded share-based compensation of $483,133. The Company valued these grants using the Black-Scholes option pricing model with the following weighted average assumptions:

		2015			2014			2013
Fair value on grant date	$	2.37		$	2.30		$	2.86
Expected Dividend yield		-			-			-
Expected volatility		50	%		50	%		64	%
Risk free interest rate		1.80	%		1.68	%		1.62	%
Expected term of the option		5 years			5 years			5 years

Activity in stock options is summarized below:




	Number of Shares			Weighted Average		Weighted Average Remaining
	Subject to Option			Exercise Price		Contractual Term (Years)	Aggregate Intrinsic Value
Balance at December 31, 2012		1,117,899		$	9.03	3.7

Granted		499,700		$	5.26
Cancelled		(64,500	)	$	12.81
Exercised		(72,500	)	$	4.83
Balance at December 31, 2013		1,480,599		$	7.80	5.2

Granted		209,750		$	5.19
Cancelled		(104,750	)	$	7.83
Exercised		(14,800	)	$	5.56
Balance at December 31, 2014		1,570,799		$	7.49	5.2

Granted		204,000		$	5.26
Cancelled		(367,793	)	$	7.70
Exercised		-		$	-
Balance at December 31, 2015		1,407,006		$	7.11	6.2	$	232,000

All options are exercisable at December 31, 2015.

During 2015, 2014 and 2013, the Company received $0, $82,288 and $322,475, respectively in proceeds from the exercise of options.

(ii) Warrants and Non-Employee Options

Activity in warrants is summarized below:

	Number of Shares Underlying
	Warrants and Non- Employee			Weighted Average
	Options Granted			Exercise Price
Balance at December 31, 2012		1,512,103		$	5.56

Exercised		(107,483	)		4.45
Terminated		(25,000	)		9.00
Issued		-			-
Balance at December 31, 2013		1,379,620		$	5.58

Exercised		(50,000	)		4.45
Terminated		-			-
Issued		24,000			6.58
Balance at December 31, 2014		1,353,620		$	5.64

Exercised		(137,174	)		4.73
Terminated		(426,083	)		6.09
Issued		-			-
Balance at December 31, 2015		790,363		$	5.56

In lieu of higher cash compensation, the Company has granted warrants and non-employee options to consultants. These warrants and non-employee options vest ratably over various terms ranging from 24 to 59 months. Non-employee five year options covering 24,000 shares were granted to consultants during 2014 that vest over a period of 12 months. These non-employee options are valued at fair value at the time that the related services are provided using the Black-Scholes option valuation model and marked to market quarterly using the Black-Scholes option valuation model. The Company incurred a charge to operations of $10,007, $32,428, and $369,844, for 2015, 2014, and 2013, respectively in connection with these warrants and non-employee options.

During 2015, 2014 and 2013, the Company received $548,475, $222,500 and $478,299, respectively in proceeds from the exercise of warrants.

Warrants and non-employee options generally expire from five to ten years from the date of issuance. At December 31, 2015, all warrants outstanding were exercisable.

(c) Restricted Stock Grants

During 2015 and 2014, the Company did not issue restricted stock to its directors and employees.

During 2013, the Company granted 282,900 shares of restricted stock to its directors and employees. Directors received 91,500 of these shares of restricted common stock. All the shares granted to the directors, as well as 3,400 shares granted to employees vested immediately upon grant. The remaining 188,000 shares vest ratably over the 36 months following grant. The market value per share on the date of grant was $3.70.

In connection with these grants, as well as prior grants that are not yet fully vested, the Company charged $231,876, $526,574, and $1,131,440, to operations during 2015, 2014, and 2013, respectively. At December 31, 2015 all prior grants have vested. At December 31, 2014 and 2013, 62,667, and 611,692, of these grants remain unvested respectively. In addition, at December 31, 2015, all charges to operations relating to these grants have been recorded.