Note 14. Equity Incentive Plans

2017 Equity Incentive Plan

In May 2017, the Board and the Company’s stockholders approved the 2017 Equity Incentive Plan (the “2017 Plan”), which became effective in connection with the IPO. The 2017 Plan provides for the issuance of stock options, restricted stock units and other awards to employees, directors and consultants of the Company. A total of 2,413,659 shares of the Company’s common stock were initially reserved for issuance under the 2017 Plan, which is the sum of (1) 900,000 shares, (2) the number of shares reserved for issuance under the 2005 Plan at the time the 2017 Plan became effective and (3) shares subject to stock options or other stock awards under the 2005 Plan that would have otherwise been returned to the 2005 Plan (up to a maximum of 1,314,752 shares). The number of shares of common stock reserved for issuance under the 2017 Plan will automatically increase on January 1 of each year, beginning on January 1, 2018 by the lesser of (1) 5% of the number of shares of the Company’s capital stock outstanding on December 31^st of the preceding calendar year or (2) such number of shares as determined by the Board. As a result of the adoption of the 2017 Plan, no further grants may be made under the 2005 Plan.

ISOs may only be granted to Company employees and may only be granted with an exercise price not less than the fair value of the common stock, or not less than 110% of fair value when the grant is issued to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of stock. Non-statutory stock options may be granted to Company employees, directors and consultants, and may be granted at a price per share not less than fair value on the date of the grant. The Board determines the fair value of the Company’s common stock.

Options granted under the 2005 Plan and 2017 Plan generally vest over four years and expire no later than 10 years from the grant date. The 2005 Plan and 2017 Plan grants the Board discretion to determine when the options granted will become exercisable. The 2005 Plan and 2017 Plan allows for the exercise of unvested options with repurchase rights over the restricted common stock issued. The Company records proceeds from early exercises as a liability and reclassifies the amount to equity as the repurchase right lapses. At December 31, 2015 and 2016, and 2017, there were no unvested options resulting from early exercises.

Aggregate intrinsic value represents the difference between the Company’s estimated or actual fair value of its common stock and the exercise price of outstanding “in-the-money” options. The aggregate intrinsic value of options exercised was $7,000, $23,000 and $0.8 million during the years ended December 31, 2015, 2016 and 2017, respectively. Based on the fair market value of the Company’s common stock at December 31, 2015, 2016 and 2017, the total intrinsic value of all outstanding options was $0.1 million, $2.5 million and $15.9 million, respectively.

At December 31, 2016 and 2017, total unrecognized stock-based compensation cost related to unvested stock options was $0.2 million, and $0.8 million, respectively, which will be recognized ratably over a weighted-average period of 3.2 years and 3.2 years, respectively.

Cash received from the exercise of stock options during the years ended December 31, 2015, 2016 and 2017 was $31,000, $25,000 and $55,000, respectively.

No income tax benefits from stock-based compensation arrangements have been recognized in the consolidated statements of operations.

The fair value of stock option grants is set forth below and was determined using the Black-Scholes option pricing model with the following assumptions:

	Year Ended December 31,
	2015	2016	2017
Fair value of common stock	$0.85	$0.85-$3.06	$3.06-$19.56
Expected term (in years)	2-10	2-10	5-6
Risk-free interest rate	0.75%-2.10%	0.75%-1.77%	1.85%-2.29%
Expected volatility	55%	55%	55%
Expected dividend yield	—	—	—

In February 2005, the Company adopted the 2005 Stock Plan, as amended in January 2010 and November 2012 (the “2005 Plan”). Under the 2005 Plan provisions, the Company was authorized to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, and shares of restricted stock.

Following the effectiveness of the 2017 Plan in connection with the IPO, no further grants will be made under the 2005 Plan.

A summary of stock option activities under the 2005 Plan and 2017 Plan during the year ended December 31, 2017 is as follows:

	Number of Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2014		916,584		$	0.89
Granted		112,068		$	0.85
Exercised		(45,199	)	$	0.70
Canceled		(45,203	)	$	0.80
Outstanding at December 31, 2015		938,250		$	0.90
Granted		272,769		$	1.27
Exercised		(33,395	)	$	0.75
Canceled		(47,483	)	$	4.14
Outstanding at December 31, 2016		1,130,141		$	0.86
Granted		261,476		$	5.52
Exercised		(74,990	)	$	0.74
Canceled		(22,499	)	$	1.52
Outstanding at December 31, 2017		1,294,128		$	1.79

Stock options outstanding, exercisable and vested were as follows:

Outstanding at December 31, 2015		Weighted-average Remaining Contractual Life (years)	Exercisable and Vested as of December 31, 2015		Weighted-average Remaining Contractual Life (years)		Weighted-average Exercise Price
	938,250	6.31		731,516	5.79		0.94

Outstanding at December 31, 2016		Weighted-average Remaining Contractual Life (years)	Exercisable and Vested as of December 31, 2016		Weighted-average Remaining Contractual Life (years)		Weighted-average Exercise Price
	1,130,141	6.29		842,261	5.32		0.74

Outstanding at December 31, 2017		Weighted-average Remaining Contractual Life (years)	Exercisable and Vested as of December 31, 2017		Weighted-average Remaining Contractual Life (years)		Weighted-average Exercise Price
	1,294,128	6.22		883,959		5.00	0.85

During the year ended December 31, 2017, the company granted non-employee directors restricted stock unit (“RSU”) awards totaling 47,312 shares of common stock, with vesting terms of approximately seven to ten months. The fair value of $11.50 to $16.96 per unit was calculated using the closing stock price on the date of grants.

In the second quarter of 2017, our board of directors authorized for issuance 900,000 new shares under our 2017 Plan.

Our equity- based incentive plans include stock options, restricted stock units and other stock awards. The number of shares available for grant under these plans was 1,003,875 as of December 31, 2017.

2017 Employee Stock Purchase Plan

In May 2017, the Board and the Company’s stockholders adopted the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which became effective in connection with the Company’s IPO. The 2017 ESPP allows eligible employees to purchase shares of the Company’s common stock in an offering at a discount of the then-current trading price, up to the lesser of (1) 85% of the fair market value of the common stock on the first day of the IPO or (2) 85% of the fair market value of the common stock on the purchase date. The 2017 ESPP permits the maximum discounted purchase price permitted under U.S. tax rules, including a “lookback.”

The 2017 ESPP initial offering period runs for approximately 24 months in length, and contains four 6-month purchase periods. An employee’s purchase rights terminate immediately upon termination of employment or other withdrawal from the 2017 ESPP. No participant will have the right to purchase shares of common stock in an amount that has a fair market value of more than $25,000 determined as of the first day of the applicable purchase period, for each calendar year.

There are 200,000 shares of common stock reserved for issuance under the 2017 ESPP. In addition, the 2017 ESPP contains a provision which provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (1) 2% of the total number of shares of common stock outstanding on December 31^st of the preceding calendar year, (2) 150,000 shares or (3) such number of shares as determined by the Board.

The Company accounts for employee stock purchases made under its 2017 ESPP using the estimate grant date fair value of accounting in accordance with ASC 718, Stock Compensation. The Company values ESPP shares using the Black-Scholes model.

There were 34,133 shares issued and outstanding under the 2017 ESPP during the year ended December 31, 2017.

Total stock-based compensation expense associated with the 2005 Plan, 2017 Plan and 2017 ESPP is recorded in the consolidated statements of operations and was allocated as follows (in thousands):

	Year Ended December 31,
	2015		2016		2017
Costs	$	13	$	11	$	75
Sales and marketing		13		7		133
Research and development		32		18		69
General and administrative		79		47		351
Total	$	137	$	83	$	628

Stock-based compensation expense is recognized over the award’s expected vesting schedule, adjusted for estimated forfeitures. The Company applied a 0% forfeiture rate for the awards granted during the years ended December 31, 2015, 2016 and 2017. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on analysis of the Company’s actual forfeiture experience, employee turnover and other factors.