Stockholders’ Equity

2011 Equity Incentive Plan

The Company’s 2011 Equity Incentive Plan, as amended and restated (the “Plan”), is designed and utilized to enable the Company to provide its employees, officers, directors, consultants and others whose past, present and/or potential contributions to the Company have been, are or will be important to the success of the Company, an opportunity to acquire a proprietary interest in the Company. A total of 8,000,000 shares of common stock are eligible for issuance under the Plan. The Plan provides for the grant of any or all of the following types of awards: stock options, restricted stock, deferred stock, stock appreciation rights and other stock-based awards. The Plan is administered by the Company’s Board of Directors, or, at the Board’s discretion, a committee of the Board.

The fair value of options and warrants is estimated on the date of grant using the Black-Scholes option pricing model. The valuation determined by the Black-Scholes option pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The risk-free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies, the expected life is based on the estimated average of the life of options and warrants using the simplified method, and forfeitures are estimated on the date of grant based on certain historical data. The Company utilizes the simplified method to determine the expected life of the options and warrants due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock Options

Options granted under the Plan expire at various times, either five, seven or ten years from the date of grant, depending on the particular grant.

On March 1, 2016, the Company granted options to purchase an aggregate of 100,000 shares of common stock to a member of management. The exercise price of the options is $7.00 per share, and one-third of the options will vest on each of December 31, 2016, December 31, 2017, and March 31, 2018.

On March 31, 2016, the Company granted options to purchase an aggregate of 1,671,500 shares of common stock to certain executives, non-executive management, and employees. The exercise price of the options is $5.80 per share, and one-third of the options will vest on each of March 31, 2017, March 31, 2018, and March 31, 2019.

On March 31, 2016, the Company granted options to purchase an aggregate of 500,000 shares of common stock to certain key employees. The exercise price for 100,000 of these options is $5.80 per share, and such options will vest on January 1, 2017. The exercise price of the remaining 400,000 options is $7.50 per share, and the vesting of such options is dependent upon the achievement of certain royalty income targets.

On March 31, 2016, the Company granted options to purchase an aggregate of 150,000 shares of common stock to non-management directors. The exercise price of the options is $5.80 per share, and 50% of the options will vest on each of March 31, 2017 and March 31, 2018.

The fair values of the options granted during the Current Quarter were estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions:

Expected Volatility	33.25 – 33.88	%
Expected Dividend Yield	0	%
Expected Life (Term)	3.25 – 5.32 years
Risk-Free Interest Rate	0.91 – 1.21	%

A summary of the Company’s stock options activity for the Current Quarter is as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2016		379,500	$	5.50		1.71	$	1,174,000
Granted		2,421,500		6.13
Canceled		-		-
Exercised		(6,500)		(3.00)
Expired/Forfeited		-		-
Outstanding and expected to vest at March 31, 2016		2,794,500	$	6.05		4.83	$	(695,000)
Exercisable at March 31, 2016		325,500	$	5.22		1.18	$	188,000

Compensation expense related to stock options for the Current Quarter and the Prior Year Quarter was approximately $18,000 and $17,000, respectively. Total unrecognized compensation expense related to unvested stock options at March 31, 2016 amounts to $3,516,000 and is expected to be recognized over a weighted average period of 3.24 years.

The following table summarizes the Company’s stock option activity for non-vested options for the Current Quarter:

	Number of Options		Weighted Average Grant Date Fair Value
Balance at January 1, 2016		47,500	$	1.43
Granted		2,421,500		1.45
Vested		-		-
Forfeited or Canceled		-		-
Balance at March 31, 2016		2,469,000	$	1.45

Warrants

Warrants granted under the Plan expire at various times, either five, seven or ten years from the date of grant, depending on the particular grant.

A summary of the Company’s warrants activity for the Current Quarter is as follows:

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Outstanding and exercisable at January 1, 2016		2,219,543	$	6.07		3.23	$	3,168,000
Granted		-		-
Canceled		-		-
Exercised		(25,000)		(0.01)
Expired/Forfeited		-		-
Outstanding and exercisable at March 31, 2016		2,194,543	$	6.14		3.01	$	(750,000)

No compensation expense was recognized in the Current Quarter or Prior Year Quarter related to warrants.

Restricted Stock

On March 31, 2016, the Company issued to a key employee 17,242 shares of restricted stock. The shares of restricted stock vest over six months.

On March 31, 2016, the Company issued to a member of management 50,000 shares of restricted stock. The shares of restricted stock vest evenly over 4 years, whereby 25% shall vest on each of March 31, 2017, March 31, 2018, March 31, 2019, and March 31, 2020.

On March 31, 2016, the Company issued to certain executives an aggregate of 150,001 shares of restricted stock. The shares of restricted stock vest evenly over three years, whereby one-third shall vest on each of March 31, 2017, March 31, 2018, and March 31, 2019.

On March 31, 2016, the Company issued to non-management directors an aggregate of 48,000 shares of restricted stock. The shares of restricted stock will vest evenly over two years, whereby 50% shall vest on March 31, 2017 and 50% shall vest on March 31, 2018.

Notwithstanding the foregoing, each grantee may extend the first anniversary of all or a portion of the restricted stock by six months and, thereafter one or more times may further extend such date with respect to all or a portion of the restricted stock until the next following September 30th or March 31st, as the case may be, by providing written notice of such election to extend such date with respect to all or a portion of the restricted stock prior to such date.

A summary of the Company’s restricted stock activity for the Current Quarter is as follows:

	Number of Restricted Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2016		3,530,485	$	4.95
Granted		265,243		5.80
Canceled		-		-
Vested		(162,500)		4.48
Expired/Forfeited		(4,525)		8.66
Outstanding at March 31, 2016		3,628,703	$	5.03

Compensation expense related to restricted stock grants for the Current Quarter and Prior Year Quarter was $1,194,000 and $996,000, respectively. Total unrecognized compensation expense related to unvested restricted stock grants at March 31, 2016 amounts to $4,818,000 and is expected to be recognized over a weighted average period of 1.67 years.

Shares Available Under the Company’s 2011 Equity Incentive Plan

At March 31, 2016, there were 562,610 shares of common stock available for issuance under the Plan.

Shares Reserved for Issuance

At March 31, 2016, there were 5,551,653 shares of common stock reserved for issuance pursuant to unexercised warrants and stock options, or available for issuance under the Plan.

Dividends

The Company has not paid any dividends to date.