NOTE 8 — STOCK OPTION PLAN AND STOCK-BASED COMPENSATION

In December 2013, the Company adopted the 2013 Equity Incentive Plan (the “Plan”), which provides for the issuance of options, stock appreciation rights, stock awards and stock units. On January 1, 2017, in accordance with the terms of the Plan, the total shares authorized for issuance under the plan increased by 750,000 to 5,781,333. This increase represents the lesser of 750,000 shares or 4% of the total shares outstanding calculated as of the end of the most recent fiscal year. The exercise price per share shall not be less than the fair value of the Company’s underlying common stock on the grant date and no option may have a term in excess of ten years. Stock option activity under the Plan is as follows:

	Shares Issuable Pursuant to Stock Options			Weighted- Average Exercise Price
Outstanding January 1, 2017		3,974,143		$	6.61

Granted		435,000		$	8.76
Exercised		(197,874	)	$	5.71
Forfeited		(213,619	)	$	8.09
Outstanding September 30, 2017		3,997,650		$	6.80
Exercisable September 30, 2017		2,301,624		$	6.00
Available for future grant		1,375,154

The weighted average grant-date fair value of stock options outstanding on September 30, 2017 was $5.20 per share. Total unrecognized compensation costs related to non-vested stock options at September 30, 2017 was approximately $8.0 million and is expected to be recognized within future operating results over a weighted-average period of 2.6 years. At September 30, 2017, the weighted average contractual term of the options outstanding is approximately 7.8 years. The intrinsic value of outstanding stock options at September 30, 2017 was $6.6 million.

The Company uses the Black Scholes model to estimate the fair value of stock options granted. For stock options granted during the nine months ended September 30, 2017 and 2016, the Company utilized the following assumptions:

	September 30,
	2017		2016
Expected term (years)	5.5-6.25		5.5-6.25
Risk free interest rate	1.83-2.02%		1.17-1.52%
Volatility	79-84%			78%
Dividend yield		0%		0%
Weighted average grant date fair value per share of common stock	$	5.08	$	5.53

Stock-Based Awards Granted to Non-employees-The Company from time to time grants options to purchase common stock to non-employees for services rendered and records expense ratably over the vesting period of each award. The Company estimates the fair value of the stock options using the Black-Scholes valuation model at each reporting date. The Company granted 155,000 stock options to non-employees during the nine months ended September 30, 2017. The Company recorded stock-based compensation expense for stock options granted to non-employees of $0.2 million and $15,000 during the nine months ended September 30, 2017 and 2016, respectively.

For stock options granted to non-employees, the Company utilized the following assumptions:

	September 30,
	2017		2016
Expected term (years)	8.9-9.5		9.9
Risk free interest rate	2.27-2.31%			1.60%
Volatility	111-112%			101%
Dividend yield		0%		0%
Weighted average grant date fair value per share of common stock	$	6.85	$	12.76

The expected term of the employee-related options was estimated using the “simplified” method as defined by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.

RSU activity under the Plan for the nine months ended September 30, 2017 is as follows:

				Weighted-Average
				Grant Date
	RSUs			Fair Value
Unvested January 1, 2017		219,600		$	13.45
Granted		-		$	-
Vested		-		$	-
Forfeited		(25,000	)	$	13.45
Unvested September 30, 2017		194,600		$	13.45

RSUs awarded to employees generally vest one-fourth per year over four years from the anniversary of the date of grant, provided the employee remains continuously employed with the Company. Shares of the Company’s stock are delivered to the employee upon vesting, subject to payment of applicable withholding taxes. The fair value of RSUs is equal to the closing price of the Company’s common stock on the date of grant. Total unrecognized compensation costs related to non-vested RSUs at September 30, 2017 was approximately $2.1 million and is expected to be recognized within future operating results over a period of 3.2 years.

The Company recognized stock-based compensation expense for the nine months ended September 30, 2017 and 2016 of $3.8 million and $2.6 million, respectively.