STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

STOCK-BASED COMPENSATION

Stock Options

As of December 31, 2016, the Company had one active stock-based compensation plan: the 1999 Stock Option Plan (the “1999 Plan”).

1999 Plan

The 1999 Plan was adopted by the Company’s Board of Directors on December 17, 1999. Under the terms of the 1999 Plan, the Company could, originally, issue up to 350,000 non-qualified or incentive stock options to purchase Common Stock of the Company. During the year ended December 31, 2014, the Company subsequently amended and restated the 1999 Plan whereby it increased the share reserve for issuance to approximately 7.0 million shares of the Company’s Common Stock.  The 1999 Plan prohibits the grant of stock option or stock appreciation right awards with an exercise price less than fair market value of Common Stock on the date of grant. The 1999 Plan also generally prohibits the “re-pricing” of stock options or stock appreciation rights, although awards may be bought-out for a payment in cash or the Company’s stock. The 1999 Plan permits the grant of stock based awards other than stock options, including the grant of “full value” awards such as restricted stock, stock units and performance shares. The 1999 Plan permits the qualification of awards under the plan (payable in either stock or cash) as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. The number of options issued and outstanding and the number of options remaining available for future issuance are shown in the table below. On July 1, 2014, the Company began soliciting written consents from its shareholders to approve an amendment to the Company’s 1999 Stock Option Plan to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million (the “Amendment”).  As of July 21, 2014, the Company had received written consents approving the Amendment from over 50% of the Company’s stockholders. As such, the Amendment was approved. The number of authorized shares available under the plan for issuance at December 31, 2016 was 6,562,781. The number of available shares under the plan for issuance at December 31, 2016 was 55,938.

A summary of the activity under the Company’s stock option plans is as follows:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Balance at December 31, 2013		3,783,411		$	0.94		7.4
Granted		435,000		$	2.13		—
Expired/Cancelled		(62,498	)	$	1.96		—
Exercised		(98,617	)	$	0.68		—
Balance at December 31, 2014		4,057,296		$	1.06		6.8
Granted		2,110,000		$	1.63		—
Expired/Cancelled		(750,622	)	$	1.86		—
Exercised		(39,705	)	$	0.87		—
Balance at December 31, 2015		5,376,969		$	1.17		6.9
Granted		1,264,000			1.34		-
Expired/Cancelled		(121,500	)		1.29		-
Exercised		(12,626	)		0.21		-
Balance at December 31, 2016		6,506,843		$	1.21		6.6

At December 31, 2016, a total of 6,506,843 options were outstanding of which 4,366,374 were exercisable at a weighted average price of $1.08 per share with a remaining weighted average contractual term of approximately 6.8 years.  The Company expects that, in addition to the 4,366,374 options that were exercisable as of December 31, 2016, another 2,140,469 will ultimately vest resulting in a combined total of 6,506,843.  Those 6,506,843 shares have a weighted average exercise price of $1.08 and an aggregate intrinsic value of approximately $1,744,000 as of December 31, 2016. Stock-based compensation expense related to equity options was approximately $1,162,000, $744,000 and $618,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

The weighted-average grant-date fair value per share of options granted to employees during the years ended December 31, 2016, 2015 and 2014 was $0.82, $1.18 and $1.37, respectively. At December 31, 2016, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $1,719,849, which will be amortized over the weighted-average remaining requisite service period of 2.1 years.

During the year ended December 31, 2016, there were 12,626 options exercised for cash resulting in the issuance of 12,626 shares of the Company’s Common Stock and proceeds of approximately $3,000.  During the year ended December 31, 2015, there were 39,705 options exercised for cash resulting in the issuance of 39,705 shares of the Company’s Common Stock and proceeds of approximately $34,000.

The intrinsic value of options exercised during the years ended December 31, 2016 and 2015 was approximately $11,000 and $35,000, respectively. The intrinsic value of options exercisable at December 31, 2016 and 2015 was approximately $1,679,000 and $1,575,000, respectively.  The intrinsic value of options that vested during 2016 was approximately 34,000. The aggregate intrinsic value for all options outstanding as of December 31, 2016 and 2015 was approximately $1,744,000 and $1,652,000, respectively.

In September 2016, the Company issued an aggregate of 168,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2017 through December 31, 2017. Such options will vest at the rate of 12,000 options per month on the last day of each month during the 2017 year. The options have an exercise price of $1.37 per share and a term of 10 years. The Company will begin recognition of compensation based on the grant-date fair value ratably over the 2017 requisite service period.

In September 2015, the Company issued an aggregate of 144,000 options to purchase shares of the Company’s Common Stock to certain members of the Company’s Board of Directors in return for their service from January 1, 2016 through December 31, 2016. Such options vest at the rate of 12,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.73 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $178,000 the twelve months ended December 31, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model.

In May 2016, the Company issued an aggregate of 16,000 options to purchase shares of the Company’s Common Stock to a new member of the Company’s Board of Directors in return for their service from May 2016 through December 31, 2016. Such options vest at the rate of 2,000 options per month on the last day of each month during the 2016 year. The options have an exercise price of $1.29 per share and a term of 10 years. Pursuant to this issuance, the Company recorded compensation expense of approximately $12,000 for the twelve months ended December 31, 2016 based on the grant-date fair value of the options determined using the Black-Scholes option-valuation model.

Restricted Stock Awards

There were no restricted stock awards issued during the years ended December 31, 2016 and 2015.

In December 2014, the Company issued 94,116 shares of its Common Stock to certain members of the Company’s Board of Directors as compensation for services to be rendered through December 2015.  Such shares vested monthly over the 12 months of 2015 with any unvested shares being forfeitable should the Board members’ service be terminated during 2015. For the year ended December 31, 2015, the Company recorded approximately $216,000 as compensation expense related to this stock issuance.

In December 2013, the Company issued 144,000 shares of its Common Stock to certain members of the Company's Board of Directors as compensation for services to be rendered through December 2014. Such shares are forfeitable should the Board members' service be terminated. For the year ended December 31, 2014, the Company recorded approximately $238,000 as compensation expense.

Stock-based Compensation

Stock-based compensation related to equity options and restricted stock has been classified as follows in the accompanying consolidated statements of operations (in thousands):

	Year Ended December 31,
	2016		2015		2014
Cost of revenues	$	20	$	15	$	12
General and administrative		714		618		572
Sales and marketing		224		171		142
Research and development		204		156		130
Total	$	1,162	$	960	$	856

Common Stock Reserved for Future Issuance

The following table summarizes the Common Stock reserved for future issuance as of December 31, 2016:

	Common Stock
Convertible preferred stock – Series B, Series E, Series F and Series G		11,709,151
Convertible lines of credit		2,201,903
Stock options outstanding		6,506,843
Warrants outstanding		175,000
Authorized for future grant under stock option plans		55,938
		20,648,835