6. Shareholders’ Equity

Under the terms of our 2011 Incentive Plan (the “Plan”), the number of shares authorized under the Plan may be increased each January 1st by an amount equal to the lesser of (a) 1,300,000 shares, (b) 4.0% of our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a lesser amount determined by the Board of Directors (the “Board”), provided that the number of shares that may be granted pursuant to awards in a single year may not exceed 10% of our outstanding shares of common stock on a fully diluted basis as of the end of the immediately preceding fiscal year. As of March 31, 2019, the total number of shares of common stock authorized under the Plan was 10,784,032 shares.

Under the terms of the Plan, the Board may grant awards to employees, officers, directors, consultants, agents, advisors and independent contractors. Awards may consist of stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards or other stock or cash-based awards. Stock options are granted with an exercise price equal to the closing price of our stock on the date of grant, and generally have a ten-year term and vest over a period of 48 months with the first 25% of the shares subject to the option vesting one year from the grant date and the remaining 75% of the shares subject to the option vesting in equal monthly increments over the subsequent 36 months. Restricted stock awards generally vest over one year. As of March 31, 2019, there were 4,376,901 shares of unissued common stock authorized and available for future awards under the Plan.

(a)

Stock options:

A summary of our stock option activity is as follows:


	Outstanding Options
	Number of Shares	Weighted Average Exercise Price
Balance at January 1, 2019	3,825,083	$	0.48
Options granted	205,000		0.28
Options cancelled/expired	(139,899)		0.64
Balance at March 31, 2019	3,890,184	$	0.46
Exercisable, March 31, 2019	3,161,973	$	0.47
Vested and expected to vest	3,703,458	$	0.46

(b)

Restricted stock awards:

Effective as of January 1, 2018, equity compensation for non-employee director service is an annual restricted stock unit award that vests over one year, the number of shares underlying such award is determined by dividing $15,000 by the closing share price on the date of grant (which shall be the first business day in January in each calendar year); when joining the Board each non-employee director shall receive an initial restricted stock unit award that vests over one year, the number of shares underlying such award be determined by dividing $15,000 by the Company’s closing stock price on the date of grant (which shall be the first trading day following the date on which such director is appointed), prorated based on the date on which such director is appointed.

A summary of our restricted stock activity is as follows:


	Restricted Shares		Weighted-Average Grant Date Fair Value	Weighted-Average Contractual Life
Non-vested restricted stock at January 1, 2019	253,363	$	0.31	9.4
Granted	358,560		0.25	—
Vested	(121,623)		0.37	—
Cancelled/expired	—		—	—
Non-vested restricted stock at March 31, 2019	490,300	$	0.26	9.7

We withheld a total of 10,135 shares as payment for withholding taxes due in connection with the vesting of restricted stock awards during the three months ended March 31, 2019, and the average price paid per share of $0.25 reflects the average market value per share of the shares withheld for tax purposes.

(c)Stock-based compensation expense:

Stock-based compensation expense is recognized using the straight-line attribution method over the employees’ requisite service period. We recognize compensation expense for only the portion of stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee attrition. If the actual number of forfeitures differs from those estimated by management, additional adjustments to stock-based compensation expense may be required in future periods.

At March 31, 2019, we had unrecognized compensation expense related to stock options and non-vested restricted stock of $212,000 to be recognized over a weighted-average period of 2.1 years.

The following table summarizes the stock-based compensation expense (in thousands):


	Three months ended March 31,
	2019		2018
Type of awards:
Stock options	$	32	$	31
Restricted stock		31		18
	$	63	$	49

Income statement account:
Selling and marketing	$	15	$	15
General and administrative		48		34
	$	63	$	49

We employ the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:


	Three months ended March 31,
	2019			2018
Expected dividend yield		—			—
Expected stock price volatility		65.4	%		67.0	%
Risk-free interest rate		2.6	%		2.6	%
Expected term (in years)		6.0	years		5.6	years
Weighted-average grant date fair-value	$	0.17		$	0.23

The aggregate intrinsic value of stock options outstanding at March 31, 2019 and 2018 was approximately $1.2 million and $48,000, respectively, and for options exercisable was $941,000 and $46,000, respectively. The intrinsic value of outstanding and exercisable stock options is calculated as the quoted market price of the stock at the balance sheet date less the exercise price of the option. There were no options exercised during the three months ended March 31, 2019 and 2018, respectively.