STOCK-BASED COMPENSATION

2014 Omnibus Incentive Plan

In January 2014, our board of directors approved the 2014 Omnibus Incentive Plan and amended and restated the plan in March 2014. Our stockholders approved the Amended and Restated 2014 Omnibus Incentive Plan, or the 2014 Plan, in March 2014. Our 2014 Plan initially permitted for the issuance of equity-based instruments covering up to a total of 1,400,000 shares of common stock. In June 2016, our board of directors and stockholders approved an increase of 1,300,000 shares and in June 2017 approved an additional increase of 3,250,000 shares of common stock bringing the total shares allowed under the plan to 5,950,000.

Option Valuation

We account for stock options in accordance with ASC Topic 718, Compensation-Stock Compensation. As of January 1, 2019, we adopted ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, which aligns the accounting of share-based payment awards issued to employees and non-employees.

We use the Black-Scholes option valuation model for estimating fair value at the date of grant. Option forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The expected term used for options is the estimated period of time that options granted are expected to be outstanding. We have estimated the expected life of stock options using the “simplified” method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to our lack of sufficient historical data. Since our stock has not been publicly traded for a sufficiently long period of time, we are utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within our industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

Stock Options

During the three months ended March 31, 2018, we granted incentive stock options for the purchase of 37,500 shares of our common stock. The stock options have an exercise price range of $5.01 per share to $5.96 per share with a term of 10 years. The stock options vest quarterly over sixteen quarters. The options granted had an aggregate grant date fair value of $141,000 utilizing the Black-Scholes option valuation model.

During the three months ended March 31, 2019, we granted incentive stock options for the purchase 40,000 shares of our common stock. The stock options have an exercise price range of $1.52 per share to $2.98 per share with a term of 10 years. The stock options vest quarterly over sixteen quarters. The options granted had an aggregate grant date fair value of $60,000 utilizing the Black-Scholes option valuation model.

We estimated the fair value of stock options awarded during the three months ended March 31, 2019 and 2018 using the Black-Scholes option valuation model. The fair values of stock options granted for the periods were estimated using the following assumptions:



	Stock Option Grants Awarded During the Three Months Ended March 31, 2019	Stock Option Grants Awarded During the Three Months Ended March 31, 2018
Stock Price	$1.52 to $2.98	$5.01 to $5.96
Dividend Yield	0.00%	0.00%
Expected Volatility	70%	70%
Risk-free interest rate	2.52% - 2.62%	2.50% - 2.61%
Expected Life	7 years	7 years

Stock-based compensation expense related to stock options was $96,000 and $107,000 for the three months ended March 31, 2019 and 2018, respectively, exclusive of options issued in connection with our incentive programs. For all stock options, we estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. During the three months ended March 31, 2019 and 2018, we applied a forfeiture rate of 10% and 6%, respectively, which is reflected in our stock-based compensation expense related to stock options.

Stock Option Award Activity

The following is a summary of our stock option activity during the three months ended March 31, 2019:



	Number of Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Life In Years
Outstanding, January 1, 2019	1,255,280		$	4.82	$	3.03	7.75
Granted	40,000		2.23		1.51		9.84
Exercised	—		—		—		—
Canceled / Forfeited	(1,252	)	4.62		2.79		—
Outstanding, March 31, 2019	1,294,028		$	4.74	$	2.98	7.57



	Number of Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Life In Years
Exercisable, January 1, 2019	843,019		$	5.02	$	3.13	7.23
Vested	42,436		4.37		2.74		8.01
Exercised	—		—		—		—
Canceled / Forfeited	(1,252	)	4.62		2.79		—
Exercisable, March 31, 2019	884,203		$	4.99	$	3.11	7.04

The following table presents information related to stock options outstanding and exercisable at March 31, 2019:



Options Outstanding		Options Exercisable
Exercise Price	Outstanding Number of Options	Weighted Average Remaining Life In Years	Exercisable Number of Options
$1.52 – $3.00	201,183	6.87	109,889
$3.25 – $4.92	651,045	8.21	413,854
$5.01 – $6.00	281,500	5.70	220,775
$6.18 – $7.20	70,000	5.79	56,255
$7.54 – $7.80	67,800	5.88	60,930
$8.06 – $12.98	22,500	5.80	22,500
	1,294,028	7.04	884,203

As of March 31, 2019, there was $1.0 million of unrecognized compensation expense related to unvested employee stock options, which is expected to be recognized over a weighted-average period of approximately 2.7 years. The aggregate intrinsic values of outstanding stock options and vested stock options as of March 31, 2019 were $208,000 and $114,000, respectively, which represent options whose exercise price was less than the closing fair market value of our common stock on March 31, 2019 of $3.00 per share.

Restricted Stock Units Activity

We account for restricted stock units issued at fair value, based on the market price of our stock on the date of grant, net of estimated forfeitures. RSUs issued in connection with our employee incentive programs typically vest within 10 days of grant. All other RSUs, primarily issued as long term incentives, generally vest annually over three to four years.

During the three months ended March 31, 2019 and 2018 we recorded $938,000 and $566,000, respectively, of stock-based compensation related to the restricted stock unit shares that had been issued to-date.

A summary of restricted stock unit activity for the three months ended March 31, 2019 is as follows:



	Number of Restricted Share Units		Weighted- Average Grant-Date Fair Value Per Share
Outstanding at January 1, 2019	1,921,594		$	4.78
Granted	743,803		3.25
Vested	(116,997	)	5.50
Forfeited	—		—
Outstanding at March 31, 2019	2,548,400		$	4.30

As of March 31, 2019, there was $7.8 million of unrecognized compensation expense related to unvested restricted stock unit agreements which is expected to be recognized over a weighted-average period of approximately 2.4 years. For restricted stock unit awards subject to graded vesting, we recognize compensation cost on a straight-line basis over the service period for the entire award.

Market-based Awards

In August 2016, we granted 250,000 market-based restricted stock units to an executive. The restricted stock units are subject to market-based vesting requirements, measured quarterly, based on the average of (a) the average high daily trading price of our common stock for each trading day during the last month of the applicable calendar quarter and (b) the average low daily trading price of our common stock for each trading day during the last month of the applicable calendar quarter, each as reported by The Nasdaq Stock Market, LLC. The restricted stock units are eligible to be earned on a quarterly basis based on a linear interpolation of the applicable share price, or in the case of a liquidation event, on the day of (or in connection with) such liquidation event based on the applicable transaction price. Once earned, the restricted stock units vest 50% on the date such restricted stock units become earned and 50% on September 30, 2019. We recognize compensation expense for restricted stock units with market conditions using a graded vesting model, based on the probability of the performance condition being met, net of estimated pre-vesting forfeitures. The share price on the date of issuance was $5.06 per share. For the three months ended March 31, 2019 and 2018, we recognized $6,000 and $6,000, respectively, of stock compensation expense in connection with this award, which is included in general and administrative expenses. The unamortized expense related to this award is $12,000 and is expected to be recognized over 0.5 years.

Incentive Bonus Awards

We provide eligible employees, including executives, the opportunity to earn bonus awards upon achievement of predetermined performance goals and objectives. The purpose is to reward attainment of company goals and/or individual performance objectives, with award opportunities expressed as a percentage of base salary. Bonuses can be measured and paid quarterly and/or annually, and are paid in cash, equity or a combination of cash and equity, in the discretion of our compensation committee. During the three months ended March 31, 2019 and 2018 we recorded $314,000 and $284,000, respectively, of stock-based compensation related to incentive bonus award programs.

Total stock-based compensation recorded in the condensed consolidated statements of comprehensive loss is allocated as follows:



	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Research and development	$	633,000	$	531,000
Sales, marketing and administration	721,000		432,000
Total stock-based compensation	$	1,354,000	$	963,000