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.

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 provided for the issuance of up to

162,500

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

July 1, 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 (“Milestone RSUs”). The Milestone RSUs vested in

June 2017,

and the Company recorded stock compensation expense of

$1.7

million during the year ended

December 31, 2017,

to reflect the issuance of these shares.

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 30

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 31

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

December 2018,

unexercised options to purchase

15,000

shares were forfeited under the

2009

Equity Incentive Plan. As of

December 31, 2018,

options to purchase

492,500

shares were unexercised and outstanding on

December 31, 2018,

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

stock-option-related compensation costs for the years ended

December 31, 2018

and

2017

relating to these options.

stock options were exercised during

2018.

options were granted in

2018

and

2017.

A summary of option activity under the plans as of

December 31, 2018,

and changes during the year ended

December 31, 2017

are presented below:

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

Outstanding at January 1, 2017		507,500		$	11.66		3.3	$	3,934
Granted		-		$	-
Forfeited, Expired or canceled		-		$	-			$	-
Exercised		-		$	-

Outstanding at December 31, 2017		507,500		$	11.66		2.3	$	3,934
Granted		-		$	-
Forfeited, Expired or canceled		15,000		$	11.75			$	100
Exercised		-		$	-

Outstanding at December 31, 2018		492,500	(a)	$	11.66		1.3	$	3,834

Options exercisable at December 31, 2018		492,500		$	11.66		1.3	$	3,834

Weighted-average years of remaining contractual life of options outstanding at December 31, 2018		1.3

(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,

297,265

shares were issued as share grants and

507,500

were issued as options. 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.

Of the total

675,000

shares reserved under the

2014

Equity Incentive Plan,

641,668

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

641,668

shares awarded,

10,224

shares were awarded for service during the plan year ended

June 30, 2018,

became effective on that date and vested on

January 31, 2019.

The accompanying consolidated statements of operations and comprehensive loss include approximately

$473,000

and

$2,304,000

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

December 31, 2018

and

2017,

respectively.

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

December 31, 2017

and

2018

is presented below:

				Weighted-
				Average
				Grant-date
	Shares			Fair Value


Nonvested at December 31, 2016		17,365		$	5.76
Granted		231,762		$	13.22
Forfeited or canceled		-		$	-
Vested		(240,433	)	$	12.66

Nonvested at December 31, 2017		8,694		$	13.81
Granted		35,720		$	12.67
Forfeited or canceled		-		$	-
Vested		(34,190	)	$	12.94

Nonvested at December 31, 2018		10,224		$	12.71