8. Stock-Based Compensation

In November 2013, the Board of Directors authorized the 2013 Stock Plan (such plan has since been adopted by the stockholders of the Company in connection with the Merger and renamed the “Inventergy Global, Inc. 2014 Stock Plan”, the “Plan” or the “2014 Plan”). Under the Plan, the Board of Directors may grant incentive stock awards to employees and directors, and non-statutory stock options to employees, directors and consultants as well as restricted stock. The Plan provides for the grant of stock options, restricted stock, and other stock-related and performance awards that may be settled in cash, stock, or other property. The Board of Directors has reserved 3,605,445 shares of common stock for issuance over the term of the Plan. The exercise price of an option cannot be less than the fair value of one share of common stock on the date of grant for incentive stock options or non-statutory stock options. The exercise price of an incentive stock option cannot be less than 110% of the fair value of one share of common stock on the date of grant for stockholders owning more than 10% of all classes of stock. Options are exercisable over periods not to exceed ten years (five years for incentive stock options granted to holders of 10% or more of the voting stock) from the grant date. Options may be granted with vesting terms as determined by the Board of Directors which generally include a one to five year period or performance conditions or both. The pre-existing options were subsumed under the Plan.

Common stock option and restricted stock award activity under the Plan was as follows:

			Options and RSAs Outstanding
					Weighted Average
	Shares Available				Exercise Price Per
	for Grant		Number of Shares		Share
Balance at December 31, 2014		689,529		2,417,918	$	2.59
Options Granted		(1,908,661)		1,908,661	$	1.02
Options Forfeited		619,864		(619,864)	$	1.14
Options Expired		60,091		(60,091)	$	2.27
Options Cancelled		1,432,661		(1,432,661)	$	2.73
Restricted Stock Granted		(394,267)		394,267	$	0.39
Restricted Stock Vested		-		(394,267)	$	0.39
Balance at June 30, 2015		499,217		2,213,963	$	1.56
Total vested and expected to vest shares (options)				2,213,963	$	1.56
Total vested shares (options)				948,833	$	2.33

As of June 30, 2015, all of the restricted stock granted under the plan had vested. The aggregate intrinsic value of stock options outstanding, stock options vested and expected to vest, and exercisable at June 30, 2015 was $0.

Prior to the plan being established, the Company granted the equivalent of 7,167,585 restricted stock awards (“RSAs”) to employees and non-employees in exchange for services with vesting specific to each individual award. As of June 30, 2015, 4,509,238 shares were vested, and 424,170 shares were cancelled or forfeited (unvested).

As part of the Merger, 15,000 fully vested options with an exercise price of $14.30, were assumed by Inventergy Global, Inc., and remained outstanding as of June 30, 2015.

Cancellation and Issuance of Options

On March 25, 2015, the Company cancelled certain unvested options (totaling 1,432,661) granted to employees and directors under the Company’s 2014 Stock Plan, which had exercise prices ranging from $2.05 to $3.85, 10 year terms and 1 to 4 year vesting terms. In addition, on March 25, 2015, the Company issued new options to the same employees and directors under the 2014 Stock Plan. The Company granted an aggregate of 1,269,845 options to its employees, the vesting schedules of which were increased by 12 months as compared to the cancelled options – an increase from an average vesting schedule spanning 2.1 years to 3.1 years. The Company also granted an aggregate of 162,816 options to its directors, the vesting schedules of which were left substantially unchanged as compared to the cancelled options which had been set to align with the service time of each board member. The new options have an exercise price of $1.14 per share, which is a 48% premium to the closing price of the Company’s common stock as of March 25, 2015.

The following table summarizes information with respect to stock options outstanding at June 30, 2015:

Options Outstanding								Options Vested
				Weighted-
				Average		Weighted-				Weighted-
Exercise				Remaining		Average				Average
Price Per		Shares		Contractual		Exercise		Shares		Exercise
Share		Outstanding		Life (Years)		Price		Exercisable		Price Per
$	0.56		25,000		1.84	$	0.56		25,000	$	0.56
$	0.69		326,000		9.58	$	0.69		-	$	-
$	0.77		150,000		9.43	$	0.77		25,000	$	0.77
$	1.14		990,818		8.33	$	1.14		176,738	$	1.14
$	2.05		17,800		9.09	$	2.05		17,800	$	2.05
$	2.27		525,628		8.45	$	2.27		525,628	$	2.27
$	3.04		123,717		1.11	$	3.04		123,717	$	3.04
$	3.85		40,000		7.60	$	3.85		40,000	$	3.85
$	14.30		15,000		0.96	$	14.30		15,000	$	14.30
			2,213,963		8.08	$	1.56		948,883	$	2.33

Stock-based compensation expense

The fair value of employee stock options granted was estimated using the following weighted-average assumptions for the six months ended June 30, 2015:

	2015
Expected volatility		64	%
Risk free rate		1.48	%
Dividend yield		0	%
Expected term (in years)		6.06

The expected term of the options is based on the average period the stock options are expected to remain outstanding based on the option’s vesting term and contractual terms. The expected stock price volatility assumptions for the Company’s stock options were determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company’s common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. Forfeitures were estimated based on the Company’s estimate of future cancellations.

Stock-based compensation for employees and non-employees related to options and RSAs recognized:

	For the three months ended June 30				For the six months ended June 30
	2015		2014		2015		2014
General and administrative	$	124,627	$	865,922	$	596,901	$	1,861,654

In November 2014, the Company modified the terms to an option granted to a former director. The Company determined that there was no incremental compensation expense associated with the modification.

No income tax benefit has been recognized related to stock-based compensation expense and no tax benefits have been realized from exercised stock awards. As of June 30, 2015, there were total unrecognized compensation costs of $1,648,911 related to these stock awards. These costs are expected to be recognized over a period of approximately 1.44 years.

Non-employee stock-based compensation expense

For the three and six months ended June 30, 2015 and 2014, the Company issued options and restricted stock awards to non-employees in exchange for services with vesting specific to each individual award. Non-employee stock-based compensation expense is recognized as the awards vest and totaled $122,659 and $216,672 for the three and six months ended June 30, 2015, respectively, and $594,103 and $1,380,903 for the three and six months ended June 30, 2014, respectively. The fair value of RSAs is calculated as the fair value of the underlying stock multiplied by the number of shares awarded.