NOTE 14: STOCK-BASED COMPENSATION

Stock Compensation Expense Information

FASB ASC 718-10 requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based on estimated fair values. In October 2014, the Company’s shareholders approved the 2014 Stock Incentive Plan, under which 7,390,355 shares were reserved for purchase by the Company’s employees. The Company has issued 48,181 in excess of the reserved shares as of the date of this Report. As a result, the Company may amend the 2014 Stock Incentive Plan to increase the number of shares reserved for purchase by the Company’s employees, subject to shareholder approval, or may seek to exchange some of the options intended to be granted under the 2014 plan for new options issued under a future plan.

On December 1, 2015, the Board of Directors granted 100,000 options to purchase common stock to a terminated employee as part of the severance package. These options vested immediately and expire ten years after the date of the grant. On November 20, 2015, the Board of Directors granted 1,150,000 options to purchase common stock of the Company to certain employees and 1,069,882 options to purchase common stock of the Company to our CFO. The options granted vest in 25% increments on each of the first four anniversaries of the date of grant, and expire ten years after the date of grant.

On October 9, 2014, the Board of Directors granted 3,753,427 options to purchase common stock of the Company to our CEO, and 480,685 options to purchase common stock of the Company to our COO/CFO. The options granted vest in 25% increments on each of the first four anniversaries of the date of grant, and expire ten years after the date of grant. In addition, on October 9, 2014, the Board of Directors granted 225,206 options to purchase common stock of the Company to certain employees. These options vest 25% per year on each of the first four anniversaries following the grant date. On October 9, 2014, the board of Directors also approved the allocation of 1,096,028 options to be reserved for grant to certain employees in the future. Compensation expense recognized for the issuance of stock options for the years ended December 31, 2015 and 2014 was as follows:

	December 31,
	2015		2014
Stock-based compensation costs included in:
Cost of sales	$	18	$	-
Sales and marketing expenses		18		1
General and administrative expenses		218		59
Total stock-based compensation expenses	$	254	$	60

At December 31, 2015, there was approximately $1,233 of total unrecognized compensation expense related to unvested share-based awards. Generally, this expense will be recognized over the next 3.8 years and will be adjusted for any future changes in estimated forfeitures.

Valuation Information for Stock-Based Compensation

For purposes of determining estimated fair value under FASB ASC 718-10, the Company computed the estimated fair values of stock options using the Black-Scholes model. The weighted average estimated fair value of stock options granted during the years ended December 31, 2015 and 2014 was $0.19 and $0.36 per share, respectively. The values set forth above were calculated using the following weighted average assumptions:

Risk-free interest rate			1.66%
Expected term			10.0 years
Expected price volatility			57.25%
Dividend yield			0%

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment behavior, so we estimate the expected term of awards granted by taking the average of the resting term and the contractual term of the awards, referred to as the simplified method. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the Company’s stock options. The Company used historical closing stock price volatility for a period of 3 years. Although the Company has historical pricing for a period equal to the expected life of the respective awards, the Company used a shorter period of time to exclude certain anomalies that occurred in 2013. The dividend yield assumption is based on the Company’s history and expectation of no future dividend payouts.

Stock-based compensation expense is based on awards ultimately expected to vest and is reduced for estimated forfeitures. FASB 718-10-55 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company applied a pre-vesting forfeiture rate of 10% based on upon actual historical experience for employee option awards of the registrant.