STOCK-BASED COMPENSATION | 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 the issuance of equity-based instruments covering up to a total of 1,400,000 shares of common stock. Our board of directors and stockholders approved an increase of 1,300,000 shares in June 2016, an additional increase of 3,250,000 shares in June 2017, and an additional increase of 4,000,000 shares in June 2019, bringing the total shares allowed under the plan to 9,950,000 . As of December 31, 2019, there were 3,173,421 shares available to issue under the 2014 Plan. 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 years ended December 31, 2019 and 2018, we granted incentive stock options for the purchase of 154,500 and 252,500 shares, respectively, of our common stock to our employees and non-employees. The options granted in 2018 have an exercise price range of $1.80 to $5.96 per share with a term of ten years. The options granted in 2019 have an exercise price range of $1.52 to $3.26 per share with a term of ten years . The options vest over various periods, generally quarterly over sixteen quarters. The options granted in 2019 had an aggregate grant date fair value of $271,000 and the options granted in 2018 had an aggregate grant date fair value of $779,000 utilizing the Black-Scholes option valuation model. We estimated the fair value of stock options awarded during the years ended December 31, 2019 and 2018 using the Black-Scholes option valuation model. The fair values of stock options granted for the years were estimated using the following assumptions: Option Grants Awarded During the Year Ended December 31, 2019 Option Grants Awarded During the Year Ended December 31, 2018 Stock Price $1.52 - $3.26 $1.80 - $5.96 Dividend Yield 0% 0% Expected Volatility 70.0% 70.0% Risk-free interest rate 1.47% - 2.62% 2.50% - 3.09% Expected Term 7 years 7 years Stock-based compensation expense related to stock options was $430,000 and $476,000 for the years ended December 31, 2019 and 2018, respectively. 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. For the years ended December 31, 2019 and 2018, we applied a forfeiture rate of six percent, 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 year ended December 31, 2018 : Number of Options Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Life In Years Outstanding, January 1, 2018 1,082,490 $ 4.87 $ 3.00 8.38 Granted 252,500 4.54 3.09 9.16 Exercised (4,692 ) 2.10 1.75 — Canceled/Forfeited (75,018 ) 4.72 2.89 — Outstanding, December 31, 2018 1,255,280 $ 4.82 $ 3.03 7.75 Number of Options Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Life In Years Exercisable, January 1, 2018 704,303 $ 5.08 $ 3.17 8.15 Vested 161,404 4.69 2.89 7.56 Exercised (4,692 ) 2.10 1.75 — Canceled/Forfeited (17,996 ) 4.72 2.84 — Exercisable, December 31, 2018 843,019 $ 5.02 $ 3.13 7.23 The following is a summary of our stock option activity during the year ended December 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 154,500 2.61 1.76 9.44 Exercised — — — — Canceled/Forfeited (69,528 ) 4.72 3.03 — Outstanding, December 31, 2019 1,340,252 $ 4.57 $ 2.88 6.95 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 178,732 3.98 2.52 7.05 Exercised — — — — Canceled/Forfeited (32,659 ) 4.55 2.81 — Exercisable, December 31, 2019 989,092 $ 4.85 $ 3.03 6.37 The following table presents information related to stock options outstanding and exercisable at December 31, 2019 : Options Outstanding Options Exercisable Exercise Price Outstanding Number of Options Weighted Average Remaining Life In Years Exercisable Number of Options $1.52 - $3.15 310,683 6.52 158,650 $3.25 - $4.92 596,203 7.49 444,371 $5.01 - $6.00 273,066 4.93 240,755 $6.18 – $7.20 70,000 5.22 60,008 $7.54 – $7.80 67,800 5.21 62,808 $8.06 - $12.98 22,500 5.05 22,500 1,340,252 6.37 989,092 As of December 31, 2019 , there was $779,000 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average vesting period of approximately 2.4 years . The aggregate intrinsic value of outstanding options and options vested as of December 31, 2019 were $98,000 and $68,000 , respectively, representing options whose exercise price was less than the closing fair market value of our common stock of $2.42 per share. The aggregate intrinsic value of outstanding options and options vested as of December 31, 2018 were zero as there were no options whose exercise price was less than the closing fair market value of our common stock of $1.33 per share. There were no excess tax benefits realized for tax deductions from stock options exercised during the years ended December 31, 2018 and 2019 as we have recorded a full valuation allowance against our deferred income taxes. Restricted Stock Units Activity We account for restricted stock units (RSUs) issued to employees at fair value, based on the market price of our stock on the date of grant, net of estimated forfeitures. The fair value of non-employee restricted stock units awarded are re-measured as the awards vest, and the resulting increase in fair value, if any, is recognized as expense in the period the related services are rendered. 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 years ended December 31, 2019 and 2018 we recorded $5.4 million and $4.8 million , respectively, of stock-based compensation related to restricted stock units. A summary of restricted stock unit activity for the year ended December 31, 2018 is as follows: Number of Restricted Share Units Weighted-Average Grant-Date Fair Value Per Share Outstanding at January 1, 2018 1,476,858 $ 4.96 Granted 1,661,750 4.60 Vested (1,051,939 ) 4.68 Forfeited (165,075 ) 5.17 Outstanding at December 31, 2018 1,921,594 $ 4.78 A summary of restricted stock unit activity for the year ended December 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 2,115,177 2.78 Vested (1,317,586 ) 3.92 Forfeited (163,181 ) 4.19 Outstanding at December 31, 2019 2,556,004 $ 3.38 As of December 31, 2019 , there was 5.5 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 2.1 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. The share price on the date of issuance was $5.06 per share. In June 2019, the market-based award was modified to increase the number of restricted stock units to 500,000 and to decrease the applicable share price. Additionally, the performance period was extended to September 30, 2022 . The share price on the date of modification was $2.73 per share. Once earned, the restricted stock units vest 50% on the date such restricted stock units become earned and 50% on September 30, 2022 . We recognize compensation expense for restricted stock units with market conditions using a graded vesting model, based on the probability of the market condition being met, net of estimated pre-vesting forfeitures. To determine the fair value of the award, we used a Monte Carlo simulation, which simulates future stock prices for the Company and, hence, shares vested, pursuant to the award. A key input into the model is the expected volatility for our stock. This estimate considered the historical volatility of our stock as well as the stock price volatility of guideline public companies. The fair value was determined to be $74,000 at the original grant date, and was $147,000 as of the modification date. For the years ended December 31, 2019 and 2018, we recognized $37,000 and $24,000 of stock compensation expense in connection with this award, which is included in sales, marketing and administration expenses. The unamortized expense related to this award is $116,000 and is expected to be recognized over 2.8 years. In December 2019, we granted 200,000 market-based restricted stock units to an executive. The restricted stock units are subject to the same market-based vesting requirements discussed for the award granted in August 2016 and modified in June 2019. The share price on the date of issuance was $2.15 per share and the fair value was determined to be $26,000 using a Monte Carlo simulation. We recognized $2,000 of stock compensation expense in connection with this award, which is included in research and development expenses. The unamortized expense related to this award is $24,000 and is expected to be recognized over 2.75 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. If paid in the form of equity, the expense is included in the above disclosures for stock options or restricted stock units as applicable. Total stock-based compensation recorded in the consolidated statements of comprehensive loss is allocated as follows: Year Ended Year Ended December 31, 2018 Research and development 2,823,000 2,556,000 Sales, marketing and administration 2,983,000 2,706,000 Total stock-based compensation $ 5,806,000 $ 5,262,000 |