STOCK-BASED COMPENSATION

Stock Options and Awards

The Company’s equity incentive program is a long-term retention program that is intended to attract, retain, and provide incentives for talented employees, consultants, officers, and directors and to align stockholder and employee interests. The Company may grant time based options, market condition based options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares, performance units, and other stock-based or cash-based awards to employees, officers, directors, and consultants. Under this program, stock options may be granted at prices not less than the fair market value on the date of grant for stock options. These options generally vest over four years and expire from seven to ten years from the date of grant. In addition to time based vesting, market condition based options are subject to a market condition: the closing price of the Company stock must exceed a certain level for a number of trading days within a specified timeframe or the options will be cancelled before the expiration of the options. Restricted stock generally vests over one year. RSUs generally vest over three years. Awards granted other than an option or stock appreciation right reduce the common stock shares available for grant under the program by 1.75 shares for each share issued.



	March 31, 2017
Common stock shares available for grant	214,915
Standard and market condition stock options outstanding	3,616,995
Restricted stock awards outstanding	77,540
RSU's outstanding	403,935

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may purchase common stock through payroll deductions at a purchase price of 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or the purchase date. Participants may not purchase more than 2,000 shares in a six-month offering period or purchase stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period. A total of 1,000,000 shares of common stock has been reserved for issuance under the ESPP. As of March 31, 2017, 677,050 shares had been purchased since the inception of the ESPP in 1999. Under ASC 718-10, the ESPP is considered a compensatory plan and the Company is required to recognize compensation cost related to the fair value of the award purchased under the ESPP. Shares purchased under the ESPP for the three months ended March 31, 2017 are listed below. Shares purchased under the ESPP for the three months ended March 31, 2016 are 17,711. The intrinsic value listed below is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.




	Three Months Ended March 31, 2017
Shares purchased under ESPP	27,667
Average price of shares purchased under ESPP	$	6.34
Intrinsic value of shares purchased under ESPP	$	109,000

Summary of Standard Stock Options

The following table sets forth the summary of activity with respect to standard stock options granted under the Company’s stock option plans for the three months ended March 31, 2017:



	Three Months Ended March 31, 2017
Beginning outstanding balance	3,421,121
Granted	45,210
Exercised	(47,273		)
Forfeited	(17,768		)
Expired	(9,295		)
Ending outstanding balance	3,391,995
Aggregate intrinsic value of options exercised	$	84,000
Weighted average fair value of options granted	4.95

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the exercise price of the Company’s common stock for the options that were in-the-money.

Information regarding these standard stock options outstanding at March 31, 2017 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
March 31, 2017
Options outstanding	3,391,995	$	8.47	3.78	$	4.2
Options vested and expected to vest using estimated forfeiture rates	3,215,683	8.45		3.67	4.1
Options exercisable	2,313,592	8.34		3.01	3.5

Summary of Market Condition Based Stock Options

The following table sets forth activity with respect to market condition based stock options granted under the Company’s stock option plans for the three months ended March 31, 2017:



	Three Months Ended March 31, 2017
Beginning outstanding balance	225,000
Granted	—
Exercised	—
Canceled	—
Ending outstanding balance	225,000
Aggregate intrinsic value of options exercised	$	—

Information regarding these market condition based stock options outstanding at March 31, 2017 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
March 31, 2017
Options outstanding	225,000	$	8.39	5.25	$	—
Options vested and expected to vest using estimated forfeiture rates	212,323	8.38		5.24	—
Options exercisable	75,000	8.09		4.92	—

Summary of Restricted Stock Units

RSU activity for the three months ended March 31, 2017 was as follows:



	Three Months Ended March 31, 2017
Beginning outstanding balance	427,192
Awarded	171,015
Released	(171,559		)
Forfeited	(22,713		)
Ending outstanding balance	403,935
Weighted average grant date fair value of RSUs granted	$	8.20
Total fair value of RSUs released	1,768,000

Information regarding RSUs outstanding at March 31, 2017 is summarized below:



	Number of Shares	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
March 31, 2017
RSUs outstanding	403,935	1.50	$	3.5
RSUs vested and expected to vest using estimated forfeiture rates	284,013	1.37	2.5

Summary of Restricted Stock Awards

Restricted stock award activity for the three months ended March 31, 2017 was as follows:



	Three Months Ended March 31, 2017
Beginning outstanding balance	77,540
Awarded	—
Released	—
Forfeited	—
Ending outstanding balance	77,540
Weighted average grant date fair value of restricted stock awarded	$	—
Total fair value of restricted stock awards released	—

Stock Plan Assumptions

The assumptions used to value option grants under the Company’s stock plans were as follows:



	Three Months Ended March 31,
	2017		2016
Standard Stock Options
Expected life (in years)	4.6		4.5
Volatility	56	%	57	%
Interest rate	1.9	%	1.3	%
Dividend yield	N/A		N/A



	Three Months Ended March 31,
	2017		2016
Market Condition Based Stock Options
Expected life (in years)	7.0		7.0
Volatility	59	%	59	%
Interest rate	1.6	%	1.6	%
Dividend yield	N/A		N/A



	Three Months Ended March 31,
	2017		2016
Employee Stock Purchase Plan
Expected life (in years)	0.5		0.5
Volatility	50	%	53	%
Interest rate	0.7	%	0.5	%
Dividend yield	N/A		N/A

Compensation Costs

Total stock-based compensation recognized in the condensed consolidated statements of operations and comprehensive loss is as follows:



	Three Months Ended March 31,
	2017		2016
	(In thousands)
Statement of Operations Classifications
Sales and marketing	$	210	$	228
Research and development	336		526
General and administrative	1,011		1,580
Total	$	1,557	$	2,334

As of March 31, 2017, there was $6.4 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock options, restricted stock awards and RSUs granted to the Company’s employees and directors. This cost will be recognized over an estimated weighted-average period of approximately 2.46 years for standard options, 2.25 years for market condition based options, 2.14 years for RSUs, and 0.18 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.