Share-based Compensation Plans

The Company has two cash-settled, share-based compensation plans, the 2013 Director Smart Bonus Unit Plan and 2013 Smart Bonus Unit Award Plan. These plans provide for the issuance of a cash bonus for stock appreciation. A Committee comprised of members of the Board of Directors approves all awards that are granted under the Company's share-based compensation plan. The Company classifies the awards as a liability as the value of the award will be settled in cash, notes, or stock. The Company awarded 8,000 equivalent shares of stock appreciation rights (“SARs") in 2016 (and 154,000 in 2015) that are measured each reporting period and are recognized pro-rata over the contractual term. The SARs vest over a period of three years and have a contractual term of five years. The liability related to these awards is included in other long-term liabilities on the consolidated balance sheets. Share-based compensation expense related to the SARs during the fiscal year ended months ended December 31, 2016 and December 31, 2015, totaled approximately $(12,000) and $(1.2) million, respectively. As of December 31, 2016, the unrecognized compensation related to unvested share-based compensation was $(2,000), which is expected to be recognized over a three-year period.

On May 22, 2015, the Company’s Board of Directors approved the 2015 Stock Incentive Plan (the “2015 Stock Plan,") which was subsequently approved by the Company’s stockholders on June 23, 2015. On September 15, 2016, the shareholders approved an increase to the share issuance to up to 3,500,000 shares of common stock. The 2015 Stock Plan allows for the issuance of up to 3,500,000 shares of common stock to be granted through incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. The exercise price of stock options under the 2015 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2015 plan shall not exceed 500,000. Options become exercisable over various periods from the date of grant, and generally expire 10 years after the grant date. As of December 31, 2016, there were approximately 1,175,000 options issued and outstanding under the 2015 Stock Plan.

On June 23, 2015, 50,000 options were granted to each of two executive officers of the Company. These options were issued at an exercise price of $1.23, vesting in equal quarterly installments over three years beginning July 1, 2015. These options are recognized as equity and subsequently amortized over the vesting period of three years. These options have since been been forfeited due to the departure of the recipients from the Company.

On July 30, 2015, the Company entered into separate consulting agreements with two individuals pursuant to which each would provide certain business and financial advisory services to the Company. In connection with the consulting agreements, each consultant was granted options exercisable for 500,000 shares of the Company’s common stock, par value $0.0001 per share under the Company’s 2015 Stock Incentive Plan (for an aggregate of 1,000,000 shares). The options had an exercise price of $1.27, would have expired on July 30, 2020, and were fully vested on the date of the grant. On January 6, 2016, the options of these individuals were revoked as the contracts were terminated for cause, pursuant to the stock option agreements.

On February 17, 2016, certain executive officers of the Company were granted options to purchase a total of 130,000 shares of common stock, with an exercise price $1.04, and vesting on the one-year anniversary of the date of grant. The total fair value of the options was $125,000 and is being amortized over the vesting period.

On March 25, 2016, certain executive officers and employees of the Company were granted options to purchase 1,030,000 shares of common stock, with an exercise price of $1.21, and vesting as to 25% of the grant on the two, three, four and five-year anniversary of the date of the grant. The fair value of the options is amortized over the vesting period. The fair value of the options totaled $611,000 at issuance.

On November 3, 2016, an executive officer was granted options to purchase 150,000 shares of common stock, with an exercise

price of $0.87, and vesting as to 33% of the grant on the one, two, and three-year anniversary of the date of the grant. The fair value of the options are amortized over the vesting period. The fair value of the options totaled $39,000 at issuance.

The fair value of all options totaled approximately $687,000 ($0.58 per share) on December 31, 2016 compared to the fair value of $1.2 million ($1.08 per share) on December 31, 2015. During the fiscal year ended months ended December 31, 2016 and December 31, 2015, the share-based compensation expense was approximately $157,000 and $1.1 million. As of December 31, 2016, total unrecognized compensation expense related to unvested share-based compensation was $528,000, which is expected to be recognized over a three-year period.

The Company determines the expense related to the SARs, employee stock options, and warrants under the guidance of ASC 718, and estimates the fair value using the Black-Scholes valuation model. For non-employee awards, the awards are accounted for under the guidance of ASC 505-50, with the fair value estimated using the Black-Scholes valuation model.

Outstanding Warrants

On July 30, 2015, the Company executed an extension on a consulting agreement through July of 2017 in exchange for the issuance of warrants exercisable for 50,000 shares of common stock at an exercise price of $1.16 per share. The warrant is also exercisable for a ten (10) day period commencing 720 days after issuance. An expense of $2,000 and $7,000 has been recognized for the fiscal year ended December 31, 2016 and December 31, 2015, respectively.

Details on the warrants issued in the "March 4, 2015 public offering" are detailed in Note (15), Stockholders' Equity and Non-controlling Interest, to the consolidated financial statements included in this report.

The grant date fair value of each option award and warrant is calculated using a Black-Scholes valuation model, which incorporates the following weighted average assumptions:



	December 31, 2016			December 31, 2015
Stock Options:
Weighted average expected volatility	101		%	92		%
Weighted Average Term (in years)	10			10
Risk-free interest rate	2		%	2		%
Weighted average forfeiture rate	55		%	—		%
Weighted average fair value at date of grant	$	0.59		$	1.08

Warrants:
Weighted average expected volatility				69		%
Weighted Average Term (in years)				2
Risk-free interest rate				2		%
Weighted average fair value at date of grant				$	1.24

The following table summarizes stock option activity:



	Number		Weighted Average Exercise Price Per Share
Outstanding as of December 31, 2015	1,100,000		$	1.27
Granted	1,310,000		1.11
Expired, forfeited, and revoked	(1,235,000	)	1.27
Exercised	—		—
Outstanding as of December 31, 2016	1,175,000		1.08
Options exercisable as of December 31, 2016	—		—
Remaining unvested options outstanding and expected to vest	1,175,000		$	1.08

Board of Director Fees

The stock compensation portion of the Board of Directors ("Board") fees are accrued evenly from the date of election to the earn date. The stock compensation is earned one year after the prior year Annual Shareholder Meeting, the date of election for each board member. In an event that a new board member is elected after the date of election, the stock compensation will be accrued pro rata from the date of election to the next Annual Shareholder Meeting.

The stock compensation expense related to the Board is contained in "General and administrative expense" on the consolidated statements of operations. During the fiscal year ended December 31, 2016 and 2015, the Company recorded approximately $437,000 and $410,000, respectively, of director fees related to stock compensation. The accrued directors fees are contained in "Accrued liabilities" within current liabilities on the consolidated balance sheets. The accrued director fees as of December 31, 2016 and December 31, 2015, total approximately $360,000 and $398,000, respectively.