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. On June 2, 2017, the Company's stockholders approved an increase to the number of shares reserved for issuance by 3,476,850 shares. 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.



	September 30, 2017
Common stock shares available for grant	2,867,585
Standard and market condition stock options outstanding	3,815,784
Restricted stock awards outstanding	44,538
RSU's outstanding	627,454

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 September 30, 2017, 698,133 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 nine months ended September 30, 2017 are listed below. Shares purchased under the ESPP for the nine months ended September 30, 2016 are 45,825. 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.




	Nine Months Ended September 30, 2017
Shares purchased under ESPP	48,750
Average price of shares purchased under ESPP	$	6.74
Intrinsic value of shares purchased under ESPP	$	136,000

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 nine months ended September 30, 2017:



	Nine Months Ended September 30, 2017
Beginning outstanding balance	3,421,121
Granted	326,978
Exercised	(58,023		)
Forfeited	(70,306		)
Expired	(149,816		)
Ending outstanding balance	3,469,954
Aggregate intrinsic value of options exercised	$	134,000
Weighted average fair value of options granted	3.96

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 September 30, 2017 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
September 30, 2017
Options outstanding	3,469,954	$	8.21	3.62	$	3.4
Options vested and expected to vest using estimated forfeiture rates	3,314,281	8.18		3.52	3.3
Options exercisable	2,417,385	7.94		2.86	3.2

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 nine months ended September 30, 2017:



	Nine Months Ended September 30, 2017
Beginning outstanding balance	225,000
Granted	120,830
Exercised	—
Canceled	—
Ending outstanding balance	345,830
Aggregate intrinsic value of options exercised	$	—

Information regarding these market condition based stock options outstanding at September 30, 2017 is summarized below:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
September 30, 2017
Options outstanding	345,830	$	8.48	5.42	$	—
Options vested and expected to vest using estimated forfeiture rates	324,033	8.47		5.38	—
Options exercisable	93,750	8.09		4.42	—

Summary of Restricted Stock Units

RSU activity for the nine months ended September 30, 2017 was as follows:



	Nine Months Ended September 30, 2017
Beginning outstanding balance	427,192
Awarded	433,015
Released	(181,392		)
Forfeited	(51,361		)
Ending outstanding balance	627,454
Weighted average fair value on grant date of RSUs	$	8.46
Total fair value of RSUs released	1,853,000

Information regarding RSUs outstanding at September 30, 2017 is summarized below:



	Number of Shares	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
September 30, 2017
RSUs outstanding	627,454	1.40	$	5.1
RSUs vested and expected to vest using estimated forfeiture rates	507,542	1.28	4.1

Summary of Restricted Stock Awards

Restricted stock award activity for the nine months ended September 30, 2017 was as follows:



	Nine Months Ended September 30, 2017
Beginning outstanding balance	77,540
Awarded	44,538
Released	(77,540		)
Forfeited	—
Ending outstanding balance	44,538
Weighted average grant date fair value of restricted stock awarded	$	8.65
Total fair value of restricted stock awards released	671,000

Stock Plan Assumptions

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Standard Stock Options
Expected life (in years)	4.6		4.5		4.5		4.5
Volatility	53	%	55	%	53	%	55	%
Interest rate	1.7	%	0.8	%	1.7	%	1.1	%
Dividend yield	N/A		N/A		N/A		N/A



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017		2016
Market Condition Based Stock Options
Expected life (in years)	N/A	N/A	7.0		7.0
Volatility	N/A	N/A	55	%	59	%
Interest rate	N/A	N/A	2.0	%	1.6	%
Dividend yield	N/A	N/A	N/A		N/A



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Employee Stock Purchase Plan
Expected life (in years)	0.5		0.5		0.5		0.5
Volatility	46	%	53	%	48	%	53	%
Interest rate	1.1	%	0.4	%	0.9	%	0.4	%
Dividend yield	N/A		N/A		N/A		N/A

Compensation Costs

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(In thousands)
Statement of Operations Classifications
Sales and marketing	$	317	$	335	$	808	$	895
Research and development	231		257		780		1,041
General and administrative	790		622		2,485		2,867
Total	$	1,338	$	1,214	$	4,073	$	4,803

As of September 30, 2017, there was $7.3 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 2.27 years for standard options, 2.33 years for market condition based options, 2.37 years for RSUs, and 0.67 years for restricted stock awards. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.