12. Stock-Based Compensation

Long-term incentive plan

During 1995, the Company established the 1995 Long-Term Incentive Stock Option Plan (the Plan), which permits the granting of stock options (including incentive stock options and nonqualified stock options) stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards or any combination of these to employees, directors or consultants. The Plan expires on June 30, 2018; the total number of shares that could be issued under the Plan is 7,500,000. As of December 31, 2016, 2,607,359 shares have been issued under the Plan, 1,556,833 stock options and 1,688,480 restricted stock units (RSUs) were outstanding under the Plan, while 1,647,328 shares remain for future grants under the Plan.

The Company recognizes compensation expense on a pro rata straight-line basis over the requisite service period for stock-based compensation awards with both graded and cliff vesting terms. The Company recognizes the cumulative effect of a change in the number of awards expected to vest in compensation expense in the period of change. The Company has not capitalized any portion of its stock-based compensation.

During the years ended December 31, 2016 and 2015, the Company recognized $1,550,000 and $541,000, respectively, of stock-based compensation expense under the fair value method. During the year ended December 31, 2016, there was approximately $151,000 of stock-based compensation expense related to cash-settled RSUs.

Stock options

Options to purchase shares of the Company's common stock under the Plan expire in either seven or ten years from the date of grant and become exercisable in three, five, or seven installments with a certain percentage of options vesting on the first anniversary of the grant date and additional options vesting on each of the subsequent anniversaries of the grant date, subject to acceleration under certain circumstances.

Information with respect to stock option activity as of and for the year ended December 31, 2016 is as follows:

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Life (Years)

Options outstanding at January 1, 2016		2,222,333		$	3.01
Options granted		40,000			2.25
Options exercised		(492,200	)		1.86
Options forfeited		(213,300	)		4.77
Options outstanding at December 31, 2016		1,556,833			3.15	$	1,573		2.05
Options expected to vest		72,000			1.87	$	117		5.45
Options exercisable at December 31, 2016		1,484,833		$	3.21	$	1,456		1.89

Information with respect to stock option activity as of and for the year ended December 31, 2015 is as follows:

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Life (Years)

Options outstanding at January 1, 2015		2,708,273		$	3.12
Options granted		240,000			1.58
Options exercised		(14,000	)		1.65
Options forfeited		(711,940	)		2.97
Options outstanding at December 31, 2015		2,222,333			3.01	$	831		2.78
Options expected to vest		218,522			1.76	$	142		3.74
Options exercisable at December 31, 2015		2,003,811		$	3.15	$	689		2.68

A summary of the status of the Company's nonvested options as of and for the year ended December 31, 2016 is presented below.

	Number of Shares			Weighted Average Fair Value

Nonvested options at January 1, 2016		218,522		$	0.89
Options granted		40,000			1.15
Options forfeited		(32,300	)		0.91
Options vested during the period		(154,222	)		0.92

Nonvested options at December 31, 2016		72,000		$	0.97

A summary of the status of the Company's nonvested options as of and for the year ended December 31, 2015 is presented below.

	Number of Shares			Weighted Average Fair Value

Nonvested options at January 1, 2015		681,983		$	1.22
Options granted		240,000			0.55
Options forfeited		(295,903	)		0.94
Options vested during the period		(407,558	)		1.21

Nonvested options at December 31, 2015		218,522		$	0.89

The Company uses a Black-Scholes valuation model to estimate the fair value of the options at grant date based on the assumptions noted in the following table. Volatility represents an average of market estimates for implied volatility of the Company's common stock. The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients' behavior. The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date:

	Years ended December 31,
	2016	2015

Risk-free interest rates	1.53%	0.93 - 2.04%
Dividend yield	0%	0%
Expected life	7.00 years	3.03 - 7.00 years
Volatility	49.05%	45.94 - 49.44%
Weighted average volatility	49.05%	47.45%

As of December 31, 2016, the Company had $2.2 million of unrecognized compensation expense related to the unvested portion of outstanding stock options and RSUs expected to be recognized on a pro-rata straight line basis over a weighted average remaining service period of approximately 5.45 years.

The Company received cash for the exercise price associated with stock options exercised of $833,000 and $23,000 during the years ended December 31, 2016 and 2015, respectively. The total intrinsic value realized by participants on stock options exercised was $407,566 and $6,000 during the years ended December 31, 2016 and 2015, respectively.

Restricted Stock Units

During the years ended December 31, 2016 and 2015, the Company issued RSUs to employees which vest upon the achievement of specific market-based or time-based measures. The fair value for RSU's is calculated based on the stock price on the grant date and expensed ratably over the requisite service period, which ranges between one and five years. The following table summarizes the information about vested and unvested restricted stock units for the years ended December 31, 2016 and 2015.

	Number of Shares			Weighted Average Fair Value

Nonvested RSUs at January 1, 2016		1,367,500		$	0.76
RSUs granted		1,537,399			1.52
RSUs forfeited		(505,000	)		0.76
RSUs vested		(711,419	)		0.76

Nonvested RSUs at December 31, 2016		1,688,480		$	1.45

Nonvested RSUs at January 1, 2015		-		$	-
RSUs granted		1,377,500			0.76
RSUs forfeited		-			-
RSUs vested		(10,000	)		-

Nonvested RSUs at December 31, 2015		1,367,500		$	0.76