Note 5. Shareholders’ Equity

Securities Purchase Agreement

On November 3, 2016, we issued 16,129,033 shares of our common stock at $1.55 per share, for aggregate gross proceeds of $25.0 million, to Accelmed Growth Partners, L.P. (“Accelmed”). This issuance of these shares was approved by our stockholders on November 3, 2016. Net proceeds totaled approximately $23,429,000 after deduction of $1,571,000 of expenses related to the issuance.

Share-based Compensation.

At December 31, 2017, the Company had one active plan, the Cogentix Medical 2015 Omnibus Incentive Plan, for share-based compensation grants (“the 2015 Plan”). Under the 2015 Plan, if we have a change in control (as defined in the 2015 Plan) and the Company is not the surviving entity, all outstanding grants, including those subject to vesting or other performance targets, fully vest immediately if they are not assumed or replaced with equivalent grants. If the Company is the surviving entity, there is no accelerated vesting of equity grants solely upon a change in control. In 2016, the Company experienced a change in control for which it was the surviving entity. Outstanding grants will vest if a participant’s employment or other service with the Company is terminated, without cause or by the participant for good reason, within two years of the November 3, 2016 change in control.

Under the 2015 Plan, we reserved 2,500,000 shares of our common stock for share-based grants and 139,738 shares remain available for grant at December 31, 2017.

We grant options at the discretion of our directors. We grant option awards with an exercise price equal to the closing market price of our stock at the date of the grant. We have options outstanding to purchase 2,545,963 shares of common stock granted under the 2015 Plan or predecessor companies’ plans. Options generally expire over a period ranging from seven to ten years from date of grant and vest at varying rates ranging up to three years. The options granted under the 2015 Plan generally provide for the exercise of options during a limited period following termination of employment, death or disability.

We determine the fair value of the option awards using the Black-Scholes option pricing model. We used the following weighted-average assumptions to value the options granted during the years ended December 31, 2017 and 2016, respectively:

	December 31, 2017			December 31, 2016
Expected life, in years		3.00			3.90
Risk-free interest rate		1.45	%		.98	%
Expected volatility		66.89	%		61.86	%
Expected dividend yield		0	%		0	%

The expected life for options granted represents the period of time we expect options to be outstanding based on historical data of option holder exercise and termination behavior for similar grants. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatility is based upon historical volatility of our common stock. We estimated the forfeiture rate for stock awards to be approximately 15% for executive employees and directors and approximately 20% for non-executive employees for the year ended December 31, 2016 awards based on our historical experience. Beginning January 1, 2017, we no longer have an estimated forfeiture rate because we adopted the rules found in ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, and now account for forfeitures when they occur.

The following table summarizes the activity related to our stock options for the years ended December 31, 2017 and 2016, respectively:

	Number of shares			Weighted average exercise price		Weighted average grant date fair value		Aggregate intrinsic value		Weighted average remaining life in years

Balance at December 31, 2015		2,573,640		$	4.46				-		5.24
Options granted		692,400			1.05	$	0.49
Options exercised		-
Options surrendered		(1,585,050	)		3.90

Balance at December 31, 2016		1,680,990		$	3.54			$	752,290		6.55
Options granted		1,042,809			1.65	$	0.74
Options exercised		(7,211	)		1.35			$	13,001
Options surrendered		(170,625	)		4.36

Balance at December 31, 2017		2,545,963		$	2.72			$	3,243,914		6.13

Options exercisable at December 31, 2017		1,031,731		$	4.55			$	705,799		3.39

The total fair value of stock options vested during the years ended December 31, 2017 and 2016, was approximately $223,000 and $276,000, respectively.

There were no options exercised for the year ended December 31, 2016.

We grant restricted shares at the discretion of our directors with vesting terms of six months to three years. The following table summarizes the activity related to our restricted stock for the years ended December 31, 2017 and 2016, respectively:

	Number of Shares			Weighted average grant date fair value		Weighted average remaining life in years		Aggregate intrinsic value

Balance at December 31, 2015		686,910		$	2.41		1.59	$	886,114
Shares granted		937,858			1.18
Shares vested		(324,521	)		2.19				652,287
Shares surrendered		(307,699	)		2.45

Balance at December 31, 2016		992,548		$	1.30		1.35	$	1,995,021
Shares granted		542,541			1.67
Shares vested		(988,097	)		1.48			$	3,112,506
Shares surrendered		(70,373	)		1.56

Balance at December 31, 2017		476,619		$	1.32		1.93	$	1,501,350

The aggregate intrinsic value shown above for the restricted shares represents the total pre-tax value based on the closing price of our common stock on the dates noted above.

We recognize share-based compensation expense in the statement of operations based on the fair value at the time of grant of the share-based payment over the requisite service period. We incurred a total of approximately $1,453,000 and $748,000 in share-based compensation expense for the years ended December 31, 2017 and 2016, respectively.

On December 31, 2017, we had approximately $768,000 of unrecognized share-based compensation cost, related to stock options that we expect to recognize over a weighted-average requisite service period of approximately 2.15 years. On December 31, 2016, we had approximately $344,000 of unrecognized share-based compensation cost, net of estimated forfeitures, related to stock options that we expect to recognize over a weighted-average requisite service period of approximately 2.05 years.

On December 31, 2017, we had approximately $462,000 of unrecognized share-based compensation cost, related to restricted stock that we expect to recognize over a weighted-average requisite service period of approximately 1.93 years. On December 31, 2016, we had approximately $743,000 of unrecognized share-based compensation cost, net of estimated forfeitures, related to restricted stock that we expect to recognize over a weighted-average requisite service period of approximately 1.26 years.