Stock-Based Compensation | 8. Stock-Based Compensation Equity Incentive Plans The Company maintains two equity incentive plans: the Amended and Restated 2013 Equity Incentive Plan, or the 2013 Plan, and the 2007 Equity Incentive Plan, or the 2007 Plan. The 2013 Plan includes a provision that shares available for grant under the Company’s 2007 Plan become available for issuance under the 2013 Plan and are no longer available for issuance under the 2007 Plan. On July 25, 2016, the Company’s Board of Directors approved an amendment to the 2013 Plan to reserve 333,333 shares of the Company’s common stock exclusively for the grant of stock awards to employees who have not previously been an employee or director of the Company, except following a bona fide period of non-employment, non-inducement non-inducement non-inducement non-inducement Stock Options A summary of stock option activity for the nine months ended September 30, 2017 is as follows: Weighted Average Weighted Remaining Number of Average Exercise Contractual Shares Price Per Share Term in Years Outstanding at December 31, 2016 896,662 $ 8.80 8.5 Granted 1,711,196 $ 1.49 Exercised — Cancelled/forfeited/expired (123,572 ) $ 5.13 8.7 Outstanding at September 30, 2017 2,484,286 $ 3.93 8.9 Vested and unvested expected to vest at September 30, 2017 2,267,826 $ 4.16 8.8 The intrinsic values of options outstanding at December 31, 2016 and September 30, 2017 were zero and $5,507, respectively, and the intrinsic value of options vested and unvested expected to vest at September 30, 2017 was $4,951. The total weighted-average grant date fair value of the 229,501 stock options that vested during the nine months ended September 30, 2017 was $5.40. The assumptions used in the Black-Scholes pricing model for stock options granted during the nine months ended September 30, 2017 were as follows: Stock and exercise prices $1.22 – $2.13 Expected dividend yield 0.00% Discount rate-bond equivalent yield 1.79% – 2.08% Expected life (in years) 5.12 – 6.09 Expected volatility 70.0% – 90.0% Using the assumptions described above, with stock and exercise prices being equal on date of grant, the weighted-average estimated fair value of options granted in the nine months ended September 30, 2017 was $1.03 per share. On August 31, 2015, the Company’s Board of Directors approved the issuance of 33,333 performance stock options with an estimated grant date fair value of $4.40 per share and an exercise price of $6.03 per share to its Chief Executive Officer, or CEO, pursuant to the 2013 Plan. On February 29, 2016, the Company’s Board of Directors approved the issuance of 33,333 performance stock options with an estimated grant date fair value of $2.87 per share and an exercise price of $4.02 per share to its CEO pursuant to the 2013 Plan. Vesting of these stock options was based on the Company’s achievement of specified objectives by December 31, 2016 as determined by the Company’s Board of Directors or the Compensation Committee of the Board of Directors. During the nine months ended September 30, 2017, 6,333 of the performance stock options granted on August 31, 2015 and 10,000 of the performance stock options granted on February 29, 2016 were declared vested by the Company’s Board of Directors, and the remaining 50,333 shares underlying these awards were forfeited. On July 25, 2016, the Company entered into an employment agreement with its new Chief Financial Officer, Senior Vice President of Operations and Secretary, or CFO. Pursuant to the terms of this employment agreement, on July 29, 2016 the CFO was granted inducement stock option awards with an exercise price of $1.95 per share to purchase up to (i) 66,666 shares of the Company’s common stock with an estimated grant date fair value of $1.45 per share, 25% of which vested on the one-year On May 2, 2017, the Company’s Board of Directors approved the issuance of an aggregate of 550,000 performance stock options to be granted on May 31, 2017 to certain of the Company’s employees and all of its executive officers pursuant to the 2013 Plan, of which 200,000 performance stock options were granted to the Company’s CEO, 100,000 performance stock options were granted to its CFO, and 75,000 performance stock options were granted to each of its Chief Scientific Officer, Senior Vice President and Senior Medical Director, Senior Vice President. Each performance stock option granted on May 31, 2017 has an exercise price of $1.50 per share, an estimated grant date fair value of $0.99 per share, and is subject to vesting as determined by the Company’s Board of Directors based on the achievement of specified corporate goals for 2017, provided that none shall vest unless a minimum level of 70% of the Company’s corporate goals for 2017 are achieved, as follows: Percentage of Overall Performance Stock Option Grant Subject to Vesting Target Minimum revenue 20 % Cost of revenue reductions and improvements 15 % Increase cash generated from operations 15 % Minimum cash on-hand 15 % Minimum customer agreements, product licensing and product launch 20 % Implementation of new products and utility trials 15 % Total 100 % Restricted Stock A summary of RSU activity for the nine months ended September 30, 2017 is as follows: Number of Weighted Outstanding at December 31, 2016 174,249 $ 2.68 Granted 350,000 $ 1.50 Vested and issued (155,829 ) $ 1.96 Forfeited (7,500 ) $ 2.12 Outstanding at September 30, 2017 360,920 $ 1.87 Vested and unvested expected to vest at September 30, 2017 301,420 $ 1.95 At September 30, 2017, the intrinsic values of RSUs outstanding and RSUs unvested and expected to vest were $443,932 and $370,747, respectively. Of the 360,920 RSUs outstanding at September 30, 2017, 10,920 are fully vested. On July 6, 2016, the Compensation Committee of the Company’s Board of Directors approved retention RSUs for an aggregate of 58,332 shares of common stock to three of the Company’s executive officers pursuant to the 2013 Plan, including retention RSUs for 25,000 shares of common stock to its CEO. Each of these retention RSUs has a grant date fair value of $1.86 per share for a grant date fair value of $108,498 to all three officers, in aggregate. These retention RSUs vested fully on the one-year one-year On May 2, 2017, the Company’s Board of Directors approved the issuance of an aggregate of 175,000 time-based RSUs and 175,000 performance RSUs to be granted on May 31, 2017 to certain of the Company’s employees and all of its executive officers pursuant to the 2013 Plan, of which 50,000 time-based RSUs and 25,000 performance RSUs were granted to its CEO, and 25,000 time-based RSUs and 25,000 performance RSUs were granted to each other executive officer. Each RSU granted on May 31, 2017 has a grant date fair value of $1.50 per share. Vesting of the time-based RSUs granted on May 31, 2017 is subject to continuing service and occurs on the one year anniversary of the vesting commencement date, or May 2, 2018, while the performance RSUs are subject to continuous service and vesting is as determined by the Company’s Board of Directors based on the achievement of specified corporate goals for 2017, provided that none shall vest unless a minimum level of 70% of the Company’s corporate goals for 2017 are achieved, as follows: Percentage of Vesting Target Minimum revenue 20 % Cost of revenue reductions and improvements 15 % Increase cash generated from operations 15 % Minimum cash on-hand 15 % Minimum customer agreements, product licensing and product launch 20 % Implementation of new products and utility trials 15 % Total 100 % Stock-based Compensation Expense The following table presents the effects of stock-based compensation related to equity awards to employees and nonemployees on the unaudited condensed statements of operations and comprehensive loss during the periods presented: For the three months ended For the nine months ended September 30, September 30, 2016 2017 2016 2017 Stock Options Cost of revenues $ 34,119 $ 59,720 $ 89,606 $ 133,105 Research and development expenses 28,189 53,405 87,153 121,834 General and administrative expenses 292,381 178,671 829,516 528,406 Sales and marketing expenses 51,924 40,181 91,164 100,327 Total expenses related to stock options 406,613 331,977 1,097,439 883,672 RSUs Cost of revenues 14,918 20,417 16,834 58,717 Research and development expenses 14,131 20,418 15,583 57,490 General and administrative expenses 6,668 74,521 7,676 160,927 Sales and marketing expenses 22,939 28,355 27,447 71,343 Total stock-based compensation $ 465,269 $ 475,688 $ 1,164,979 $ 1,232,149 Stock-based compensation expense was recorded net of estimated forfeitures of 0% - 8% per annum during the nine months ended September 30, 2016 and 2017. As of September 30, 2017, total unrecognized stock-based compensation expense related to unvested stock options and RSUs, adjusted for estimated forfeitures, was approximately $2,128,000 and is expected to be recognized over a weighted-average period of approximately 2.3 years. | 10. Stock-Based Compensation On September 29, 2016, the Company effected a one-for-three Equity Incentive Plans The Company maintains two equity incentive plans: The Amended and Restated 2013 Equity Incentive Plan, or the 2013 Plan, and the 2007 Equity Incentive Plan, or the 2007 Plan. The 2013 Plan includes a provision that shares available for grant under the Company’s 2007 Plan become available for issuance under the 2013 Plan and are no longer available for issuance under the 2007 Plan. On July 25, 2016, the Company’s Board of Directors approved an amendment to the 2013 Plan to reserve 1,000,000 shares on a pre-reverse non-employment, one-for-three non-inducement non-inducement non-inducement non-inducement Stock Options Non-performance Non-performance month-one The fair value of stock options is determined on the date of grant using the Black-Scholes valuation model. For non-performance The assumptions used in the Black-Scholes pricing model for options granted during the years ended December 31, 2015 and 2016 are as follows: 2015 2016 Stock and exercise prices $ 4.14 – $10.14 $ 0.775 – $4.02 Expected dividend yield 0.00% 0.00% Discount rate-bond equivalent yield 1.52% – 1.94% 0.99% – 2.11% Expected life (in years) 5.23 – 6.08 5.13 – 6.08 Expected volatility 70.0% – 100.0% 80.0% – 90.0% Using the assumptions described above, with stock and exercise prices being equal on date of grant, the weighted-average estimated fair value of options granted in 2015 and 2016 were approximately $3.96 and $1.79 per share, respectively. A summary of stock option activity for the years ended December 31, 2015 and 2016 is as follows: Weighted Average Weighted Remaining Number of Average Exercise Contractual Shares Price Per Share Term in Years Outstanding at December 31, 2014 302,015 $ 18.88 9.0 Granted 441,288 $ 6.01 Exercised — — Cancelled/forfeited/expired (29,644 ) $ 13.83 Outstanding at December 31, 2015 713,659 $ 11.03 8.8 Granted 290,399 $ 2.51 Exercised — — Cancelled/forfeited/expired (107,396 ) $ 7.99 Outstanding at December 31, 2016 896,662 $ 8.80 8.5 Vested and unvested expected to vest, December 31, 2016 801,529 $ 9.26 8.0 The intrinsic values of options outstanding at December 31, 2015 and 2016, as well as options vested and unvested expected to vest at December 31, 2016, were zero. The total weighted-average grant date fair values of the 75,455 and 218,688 stock options vested during the years ended December 31, 2015 and 2016, respectively, were $1,185,128 and $1,563,378, respectively. Further information about the options outstanding and exercisable at December 31, 2016 is as follows: Weighted Weighted Average Average Total Shares Contractual Total Shares Exercise Price Outstanding Life (in years) Exercisable $ 0.78 13,771 10.0 — $ 1.93 184,073 9.6 42,082 $ 4.06 118,342 9.1 67,919 $ 6.37 336,406 8.7 149,981 $ 15.26 139,104 6.8 116,789 $ 26.45 104,966 7.1 78,466 896,662 455,237 The intrinsic value of options exercisable at December 31, 2016 was zero. On August 31, 2015, the Company’s Board of Directors approved the issuance of 33,333 stock options with an estimated grant date fair value of $4.40 per share and an exercise price of $6.03 per share to its Chief Executive Officer pursuant to the 2013 Plan. On February 29, 2016, the Company’s Board of Directors approved the issuance of 33,333 stock options with an estimated grant date fair value of $2.87 per share and an exercise price of $4.02 per share to its Chief Executive Officer pursuant to the 2013 Plan. Vesting of these stock options was based on the Company’s achievement of specified objectives by December 31, 2016 as determined by the Company’s Board of Directors or Compensation Committee. Subsequent to the year ended December 31, 2016, 6,333 of the performance stock options granted on August 31, 2015 and 10,000 of the performance stock options granted on February 29, 2016 were declared vested by our Board of Directors in satisfaction of these awards, and the remaining 50,333 shares underlying these awards were forfeited. On July 25, 2016, the Company entered into an employment agreement with its new Chief Financial Officer, Senior Vice President of Operations and Secretary, or CFO. Pursuant to the terms of this employment agreement, on July 29, 2016 the CFO was granted inducement stock option awards with an exercise price of $1.95 per share to purchase up to (i) 66,666 shares of the Company’s common stock with an estimated grant date fair value of $1.45 per share, 25% of which will vest on the one-year Restricted Stock The fair value of RSUs awarded under either plan is determined by the closing price of the Company’s common stock on the date of grant. For non-performance A summary of RSU activity during 2015 and 2016 is as follows: Weighted Number of Average Grant Shares Date Fair Value Outstanding at December 31, 2014 83,755 $ 15.43 Granted — — Issued (58,003 ) $ 15.56 Forfeited — — Outstanding at December 31, 2015 25,752 $ 15.12 Granted 165,829 $ 1.96 Issued (4,449 ) $ 16.05 Forfeited (12,883 ) $ 13.34 Outstanding at December 31, 2016 174,249 $ 2.68 Vested and unvested expected to vest, December 31, 2016 171,667 $ 2.69 On June 12, 2014, the Company’s Board of Directors approved the grant of 14,832 RSUs with a grant date fair value of $16.05 per share to its Chief Executive Officer pursuant to the 2013 Plan. Vesting of these RSUs was based on the Company’s achievement of specified objectives by December 31, 2015 as determined by the Company’s Board of Directors or Compensation Committee. During the year ended December 31, 2016, a total of 4,449 RSUs were declared vested by the Company’s Board of Directors and issued to its Chief Executive Officer in satisfaction of the June 12, 2014 RSU award, and the remaining 10,383 shares underlying this award were forfeited. The RSUs granted during the year ended December 31, 2016 vest fully on the one year anniversary of the date of grant, subject to continuing service by the holders of such RSUs. At December 31, 2016, the intrinsic values of RSUs outstanding and RSUs unvested and expected to vest were $135,043 and $133,042, respectively. On July 6, 2016, the Compensation Committee of the Company’s Board of Directors approved retention RSUs for an aggregate of 58,332 shares of common stock to three of the Company’s executive officers pursuant to the 2013 Plan, including retention RSUs for 25,000 shares of common stock to its Chief Executive Officer. Each of these retention RSUs has a grant date fair value of $1.86 per share for a grant date fair value of $108,498 to all three officers, in aggregate. These retention RSUs vest fully on the one year anniversary of the date of grant, subject to continuing service by the holders of such RSUs. Pursuant to the terms of the Company’s employment agreement with its CFO dated July 25, 2016, the CFO was granted an inducement RSU award on July 29, 2016 covering 25,000 shares of the Company’s common stock with a grant date fair value of $1.95 per share, 100% of which will vest on the one-year Stock-based Compensation Expense The following table presents the effects of stock-based compensation related to equity awards to employees and nonemployees on the statement of operations during the periods presented: Years Ended December 31, 2015 2016 Stock Options Cost of revenues $ 68,660 $ 115,266 Research and development expenses 103,138 123,330 General and administrative expenses 933,018 1,071,490 Sales and marketing expenses 149,917 142,741 Total expenses related to stock options 1,254,733 1,452,827 RSUs Cost of revenues — 32,338 Research and development expenses 10,724 30,261 General and administrative expenses 112,367 38,274 Sales and marketing expenses — 40,247 Total stock-based compensation $ 1,377,824 $ 1,593,947 Stock-based compensation expense was recorded net of estimated forfeitures of 0% – 4% and 0% – 8% per annum during the years ended December 31, 2015 and 2016, respectively. As of December 31, 2016, total unrecognized share-based compensation expense related to unvested stock options and RSUs, adjusted for estimated forfeitures, was approximately $1,611,000, and is expected to be recognized over a weighted-average period of approximately 2.1 years. |