10. Stock Option Plan

The Company’s stock-based compensation program is designed to attract and retain employees while also aligning employees’ interests with the interests of its stockholders. Stock options have been granted to employees under the stockholder-approved 2007 Key Person Stock Option Plan (“2007 Plan”) or the stockholder-approved 2014 Stock Incentive Plan (“2014 Plan”). Stockholder approval of the 2014 Plan became effective in September 2014. The 2014 Plan originally provided that the aggregate number of shares of common stock that may be issued pursuant to awards granted under the 2014 Plan may not exceed 450,000 shares (the “Share Reserve”), however in October 2015, the stockholders approved a 1,500,000 increase to the Share Reserve. In addition, the Share Reserve automatically increases on January 1st of each year, for a period of not more than 10 years, beginning on January 1st of the year following the year in which the 2014 Plan became effective and ending on (and including) January 1, 2024, in an amount equal to 4% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. The Company’s board of directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of common stock than would otherwise occur. The Share Reserve is currently 2,343,583 shares for the year ending December 31, 2016.

In light of stockholder approval of the 2014 Plan, the Company no longer grants equity awards under the 2007 Plan. As of December 31, 2016, 0 shares of an aggregate total of 407,500 shares were available for future stock-based compensation grants under the 2007 Plan and 686,515 shares of an aggregate total of 2,343,582 shares were available for future stock-based compensation grants under the 2014 Plan.

Aggregate intrinsic value represents the difference between the closing market value as of December 31, 2016 of the underlying common stock and the exercise price of outstanding, in-the-money options. A summary of the Company’s stock option activity and related information for 2016 and 2015 is as follows:

	Options Outstanding
	Number of Stock Options Outstanding		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value (in thousands)
Balance, January 1, 2015		649,500		$	1.49		7.44		$	474
Options granted		1,308,017			3.15
Options exercised		(7,051)			2.10				$	17
Options forfeited/cancelled		(40,555)			2.29
Balance, December 31, 2015		1,909,911		$	2.58		8.56		$	813
Options granted		160,000			2.23
Options forfeited/cancelled		(20,394)			2.23
Balance, December 31, 2016		2,049,517		$	2.58		7.66		$	306
Exercisable as of December 31, 2015		1,464,189		$	2.60		8.32		$	713
Exercisable as of December 31, 2016		1,643,417		$	2.60		7.66		$	306

The total compensation cost related to unvested stock option awards not yet recognized was $656 as of December 31, 2016. The weighted average period over which the total unrecognized compensation cost related to these unvested stock awards will be recognized is 2.4 years. The total number of unvested shares was 406,100 and 409,643 as of December 31, 2016 and 2015, respectively. The total estimated grant date fair value of unvested options was $1,092 and $2,484 as of December 31, 2016 and 2015, respectively. The total estimated grant date fair value of options vested during the years ended December 31, 2016 and 2015 was $300 and $2,605, respectively. The weighted average grant date fair value of options granted during the year ended December 31, 2016 is $1.43 per share or an aggregate grant date fair value of $229. The weighted average grant date fair value of options granted during the year ended December 31, 2015 is $2.08 per share or an aggregate grant date fair value of $2,722. The weighted average grand date fair value of options forfeited during the year ended December 31, 2016 was $30. The weighted average grant date fair value of options forfeited during the year ended December 31, 2015 was $61.

On January 1, 2015, the Company’s Compensation Committee granted an option to acquire an aggregate of 75,000 shares under the 2014 Plan. On May 1, 2015 the Company’s Compensation Committee granted options to acquire an aggregate of 50,000 shares under the 2014 Plan. On July 21, 2015, the Company’s Compensation Committee granted options to acquire an aggregate of 111,300 shares under the 2014 Plan. All of these options vest monthly over 48 months such that they are vested in full on the four-year anniversary of the grant date.

On July 21, 2015, the Company’s Compensation Committee approved the grant of options to acquire an aggregate of 730,500 shares under the 2014 Plan, contingent upon receipt of stockholder approval of an increase of 1,500,000 shares in the 2014 Plan Share Reserve (which approval was received on October 29, 2015). These options originally vested monthly over 12 months such that they are vested in full on the one-year anniversary of the October 29, 2015 grant effectiveness date. On July 31, 2015, the Company’s Compensation Committee granted options to the board of directors to acquire an aggregate of 35,000 shares under the 2014 Plan, which options vested in full on the grant date.

On December 31, 2015, the Company’s Compensation Committee granted options to the board of directors, including the CEO, to acquire an aggregate of 306,217 shares under the 2014 plan. Of these, 106,800 options vest monthly over 48 months such that they are vested in full on the four-year anniversary of the grant date. The remaining 199,417 options vested immediately upon grant.

In December 2015, the Company accelerated the vesting on 730,500 outstanding options such that they were vested in full as of December 31, 2015. The Company has recorded an expense of $1,062 as it relates to stock based compensation during the year ended December 31, 2015 for this change in vesting schedule.

In February 2016, the Company’s Compensation Committee granted options to the board of directors, including the CEO, to acquire an aggregate of 160,000 shares under the 2014 plan. Of these, 35,000 options vest annually on the 1-year anniversary of the grant date. The remaining 125,000 shares vest monthly over 48 months such that they are vested in full on the four-year anniversary of the grant date.

Determining the Fair Value of Stock Options

The fair value of the options granted is estimated on the date of grant using the Black-Scholes pricing model and the following assumptions for the periods presented:

	Year ended December 31,
	2016	2015
Expected term (in years)	5	5
Risk-free interest rate	1.28%	1.5 – 1.76%
Expected volatility	99.9%	80.7 – 83.3%
Expected dividend rate	0%	0%

The assumptions are based on the following for each of the years presented:

Valuation Method — The Company estimates the fair value of its stock options using the Black-Scholes option pricing model.

Expected Term — The Company estimates the expected term consistent with the simplified method identified by the Securities and Exchange Commission (“SEC”). The Company elected to use the simplified method because of its limited history of stock option exercise activity and its stock options meet the criteria of the “plain-vanilla” options as defined by the SEC. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award.

Volatility — The Company derives this number from the historical stock volatilities of the Company’s stock over a period approximately equal to the expected term of the options.

Risk-free Interest Rate — The risk-free interest rate is based on median U.S. Treasury zero coupon issues with remaining terms similar to the expected term on the options.

Expected Dividend — The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation model.

Forfeiture — The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

The Company has recorded an expense of $300 and $2,605 as it relates to stock-based compensation for the years ended December 31, 2016 and 2015, respectively, which was allocated as follows based on the role and responsibility of the recipient in the Company:

	Year ended December 31,
	2016			2015
Cost of Revenue		$	2		$	2
Engineering and Product Development			47			101
Sales and Marketing			94			1,172
General and Administrative			157			1,330
Total		$	300		$	2,605