Stock-Based Compensation and Benefit Plans

6 Months Ended

Jun. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation and Benefit Plans

10. Stock-Based Compensation and Benefit Plans

Stock Options and Performance Awards

On February 9, 2010, the board of directors adopted the 2010 Equity Incentive Plan (the “2010 EIP”). The 2010 EIP was approved by the shareholders of the Company. Participants in the plan include the Company’s employees, officers, directors, consultants, or independent contractors. On February 12, 2014, the Board of Directors approved the assumption of the 2010 EIP as part of the Merger; however, it was agreed that no new grants would be made under the 2010 EIP. As of June 30, 2016, the number of common stock reserved for issuance under the 2010 EIP was 7,850 shares. On February 12, 2014, the board of directors also adopted the 2014 Stock Incentive Plan (the “2014 SIP”) for an aggregate of 101,442 shares of common stock, $0.0001 par value per share. On June 2, 2016, the board of directors also adopted the 2016 Stock Incentive Plan (the “2016 SIP”) for an aggregate of 600,000 shares of common stock, $0.0001 par value per share. The Company’s Chief Executive Officer may, on a discretionary basis and without committee review or approval, grant non-qualified (non-statutory) stock options for up to 6,667 common shares to new employees of the Company who are not officers of the Company during each fiscal year. Incentives under the plan may be granted in one or a combination of the following forms: (a) incentive stock options and non-statutory stock options; (b) stock appreciation rights (“SARs”); (c) stock awards; (d) restricted stock; (e) restricted stock units; and (f) performance shares. Eligible participants include officers and employees of the company, members of the Board of Directors, and consultants or other independent contractors. No person is eligible to receive grants of stock options and SARs under the 2014 SIP that exceed, in the aggregate, 26,667 shares of common stock in any one year. The term of each stock option shall be determined by the board or committee, but shall not exceed ten years. Vested stock options may be exercised in whole or part by the holder giving notice to the Company. Options under the plan may provide for the holder of the option to make payment of the exercise price by surrender of shares equal in value to the exercise price. Options granted to employees generally vest over two to three years. Stock awards granted to non-employee directors generally vest 50% on the grant date and 50% on the first anniversary of the date of the grant. Options expire five years from the date of grant.

During the three and six months ended June 30, 2016, the Company issued options to purchase 6,668 and 106,273 shares, with exercise prices ranging from $5.70 to $7.50 per share. The aggregate fair value of options granted totaled approximately $21,000 and $271,000, respectively, for the three and six months ended June 30, 2016. Of those options, grants issued to executive management outside of the 2014 SIP totaled 72,200 shares and vest 1/3^rd on date of grant and 1/3^rd each of the first two anniversary dates thereafter.

During the three and six months ended June 30, 2015, the Company issued options to purchase 6,200 and 37,200 shares, respectively, with exercise prices ranging from $11.25 to $22.50 per share. The aggregate fair value of options granted totaled approximately $16,000 and $100,000 for the three and six months ended June 30, 2015. Of those options, options issued to executive management and directors outside of the 2014 SIP totaled 19,667 shares and vest 1/3^rd each of the first two anniversary dates thereafter. A total of 2,667 options issued to a director vested 100% on the grant date in January 2015.

During the three and six months ended June 30, 2016, the Company issued to certain non-executive associates (employees) common stock under the 2014 SIP as part of the Company’s quarterly Performance Bonus Plan (the “Performance Bonus Plan”). The Performance Bonus Plan is intended to provide incentive for associates to establish quarterly goals and objectives as defined by management and achieve those goals and objectives above the established criteria. The performance awards issued totaled 9,489 and 15,859 shares, respectively, for the three and six months ended June 30, 2016. The fair value of approximately $50,000 and $84,000 was recognized during the three and six months ended June 30, 2016, respectively.

As of June 30, 2016, the Company had outstanding stock options totaling 66,089 shares granted under the 2014 SIP. As of June 30, 2016, the 2010 EIP had outstanding stock options of 7,809 shares. As of June 30, 2016, there were no outstanding stock options pursuant to the 2016 SIP. The Company has also issued stock options outside of the 2014 SIP. As of June 30, 2016, the Company had outstanding stock options totaling 216,450 shares issued outside of the 2014 SIP.

Stock Compensation Expense Information

FASB ASC Topic 718-10 requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based on estimated fair values as of the grant date. Compensation expense recognized for the issuance of warrants, stock options, restricted stock grants and stock bonuses for the three and six months ended June 30, 2016 and 2015 was as follows:

	Three Months Ended				Six Months Ended
	June 30, 2016		June 30, 2015		June 30, 2016		June 30, 2015
Stock-based compensation costs included in:
Cost of revenue	$	53,071	$	12,543	$	73,672	$	16,438
Sales and marketing expenses		51,545		18,938		82,833		31,061
Research and development expenses		44,443		21,706		74,464		39,141
General and administrative expenses		30,377		30,215		77,253		67,668
Total stock-based compensation expense	$	179,436	$	83,402	$	308,222	$	154,308

As of June 30, 2016, the total compensation cost related to unvested options awards not yet recognized was approximately $217,000, which will be recognized over a weighted-average period of 1.4 years. There were no options exercised during the three and six months ended June 30, 2016 and 2015.

The estimated fair values of stock options granted and assumptions used for the Black-Scholes option pricing model were as follows:

	Three Months Ended						Six Months Ended
	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Estimated Fair Value	$	20,976		$	15,557		$	271,484		$	100,289
Shares Issuable Under Options Granted		6,668			6,200			106,273			37,200
Expected Term		3 Years			3 Years			3 Years			2 to 3 Years
Expected Dividend		0	%		0	%		0	%		0	%
Volatility		69% to 73	%		30	%		61% to 73	%		26% to 30	%
Risk Free Interest Rate		0.90% to 1.04	%		0.86% to 0.91	%		0.90% to 1.31	%		0.22% to 1.07	%

The following is a summary of stock option activity for the three and six months ended June 30, 2016:

						Weighted
	Number of					Remaining
	Shares Issuable			Weighted Avg.		Contractual		Intrinsic
	Under Options			Exercise Price		Life (Years)		Value
Balance, December 31, 2015		249,951		$	19.80		3.95	$	-
Granted		99,605			6.07
Exercised		—			—
Forfeited or Expired		(31,295	)		12.15
Balance, March 31, 2016		318,261			16.35		3.70		121,741
Granted		6,668			6.78
Exercised		—			—
Forfeited or Expired		(34,549	)		16.18
Balance, June 30, 2016		290,380		$	16.08		3.82	$	82,897
Exercisable at June 30, 2016		183,955		$	19.78		3.52	$	27,741

Information with respect to stock options outstanding and exercisable as of June 30, 2016:

	Stock Options Outstanding								Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Price		Aggregate Intrinsic Value		Number Exercisable		Weighted Average Price		Aggregate Intrinsic Value
$5.70 to $9.30		85,584		4.50	$	6.19	$	82,897		29,274	$	6.20	$	27,741
$10.50 to $20.25		77,770		4.05		12.72		—		32,751		12.90		—
$22.50 to $60.00		127,026		3.21		24.81		—		121,930		24.89		—
		290,380		3.82	$	16.08	$	82,897		183,955	$	19.78	$	27,741

The Company calculates the estimated expected life based upon historical exercise data. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the Company’s stock options. The Company estimates the volatility of its common stock at the date of grant based on the volatility of comparable peer companies that are publicly traded for periods prior to its public offering, and the Company includes its actual common stock trading to compute volatility for later periods. The dividend yield assumption is based on the Company’s history and expectation of no future dividend payouts.

The Company has used an expected life of two to three years for the term of the options. The Company estimates forfeitures when recognizing compensation expense and this estimate of forfeitures is adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and also impacts the amount of unamortized compensation expense to be recognized in future periods.

2014 Associate Stock Purchase Plan

In September 2014 and August 2015, the Company’s Board of Directors and stockholders, respectively, approved the 2014 Associate Stock Purchase Plan, under which 33,334 shares were reserved for purchase by the Company’s associates (employees). The purchase price of the shares under the plan is the lesser of 85% of the fair market value on the first or last day of the offering period. Offering periods are every six months ending on June 30 and December 31. Associates may designate up to ten percent of their compensation for the purchase of shares under the plan. As of June 30, 2016, there are 7,456 shares available for purchase remaining in the plan.