Stock-Based Compensation | 10. Stock-Based Compensation On September 29, 2016, the Company effected a one-for-three reverse stock split of all common shares outstanding. The following per share amounts and share numbers have been adjusted for this reverse stock split as if it had occurred on December 31, 2014. 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 stock split basis, or 333,333 shares on a post-reverse stock split basis, 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, as an inducement material to the individual’s entering into employment with the Company, as defined under applicable Nasdaq Listing Rules. In conjunction with the one-for-three reverse split of the Company’s common stock effected on September 29, 2016, the number of non-inducement shares authorized under all plans decreased from 3,068,865 to 1,022,955 shares, and the number of inducement shares authorized under the 2013 Plan decreased from 1,000,000 shares to 333,333 shares. As of December 31, 2016, under all plans, a total of 1,022,955 non-inducement shares were authorized for issuance, 987,394 shares had been issued, 945,912 non-inducement stock options and RSUs were outstanding, and 35,561 non-inducement shares were available for grant. As of December 31, 2016, a total of 333,333 inducement shares were authorized for issuance, 124,999 inducement stock options and RSUs had been issued and were outstanding, and 208,334 inducement shares were available for grant under the 2013 Plan. Stock Options Non-performance options granted under either plan vest over a maximum period of four years and expire ten years from the date of grant. Non-performance options generally vest either (i) over four years, 25% on the one year anniversary of the date of grant and monthly thereafter for the remaining three years; or (ii) over four years, monthly vesting beginning month-one after the grant and monthly thereafter. The fair value of stock options is determined on the date of grant using the Black-Scholes valuation model. For non-performance awards, such value is recognized as expense over the requisite service period, net of estimated forfeitures, using the straight-line method. The amount and timing of compensation expense recognized for performance awards is based on management’s estimate of the most likely outcome and when the achievement of the performance objectives is probable. The determination of the fair value of stock options is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. The volatility assumption is based on a combination of the historical volatility of the Company’s common stock and the volatilities of similar companies over a period of time equal to the expected term of the stock options. The volatilities of similar companies are used in conjunction with the Company’s historical volatility because of the lack of sufficient relevant history for the Company’s common stock equal to the expected term. The expected term of employee stock options represents the weighted-average period the stock options are expected to remain outstanding. The expected term assumption is estimated based primarily on the options’ vesting terms and remaining contractual life and employees’ expected exercise and post-vesting employment termination behavior. The risk-free interest rate assumption is based upon observed interest rates on the grant date appropriate for the term of the employee stock options. The dividend yield assumption is based on the expectation of no future dividend payouts by the Company. 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 anniversary of the commencement of the CFO’s employment with the Company, and remainder of which will vest in equal monthly installments over the following three years, and (ii) 33,333 shares of the Company’s common stock with an estimated grant date fair value of $1.26 per share, which vest upon the Company’s achievement of specified corporate goals for 2016 and the consummation of a specified financing transaction. Subsequent to the year ended December 31, 2016, 16,383 stock options were declared vested by our Board of Directors in satisfaction of the 33,333 performance option award granted on July 29, 2016, and the remaining 16,950 shares underlying this award was forfeited. 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 RSUs, such value is recognized as expense over the requisite service period, net of estimated forfeitures, using the straight-line method. The amount and timing of compensation expense recognized for RSUs is based on management’s estimate of the most likely outcome and when the achievement of the performance objectives is probable. 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 anniversary of the commencement of the CFO’s employment with the Company. 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. |