8. Stock-Based Compensation

Stock Plan

In November 2013, the Board of Directors authorized the 2013 Stock Plan (such plan has since been adopted by the stockholders of the Company in connection with the Merger and renamed the "Inventergy Global, Inc. 2014 Stock Plan", the "Plan"). Under the Plan, the Board of Directors may grant incentive stock awards to employees and directors, and non-statutory stock options to employees, directors and consultants as well as restricted stock. The Plan provides for the grant of stock options, restricted stock, and other stock-related and performance awards that may be settled in cash, stock, or other property. The Board of Directors has reserved 3,605,495 shares of common stock for issuance over the term of the Plan. The exercise price of an option cannot be less than the fair value of one share of common stock on the date of grant for incentive stock options or non-statutory stock options. The exercise price of an incentive stock option cannot be less than 110% of the fair value of one share of common stock on the date of grant for stockholders owning more than 10% of all classes of stock. Options are exercisable over periods not to exceed ten years (five years for incentive stock options granted to holders of 10% or more of the voting stock) from the grant date. Options may be granted with vesting terms as determined by the Board of Directors which generally include a one to five year period or performance conditions or both. The pre-existing options were subsumed under the new plan.

Common stock option and restricted stock award activity under the Plan was as follows:

			Options and RSAs Outstanding
	Shares				Weighted Average
	Available For		Number of		Exercise Price
	Grant		Shares		Per Share
Balance at June 30, 2013 (1)		-		-	$	-
Authorized		2,898,495		-	$	-
Options Granted		(1,293,720)		1,293,720	$	2.27
Restricted Awards Granted		(318,128)		318,128
Balance at December 31, 2013		1,286,647		1,611,848
Authorized		706,950		-	$	-
Options Granted		(902,298)		902,298	$	3.37
Options assumed in Merger		(15,000)		15,000	$	14.30
Restricted Awards Granted		(19,088)		19,088
Restricted Awards Vested		-		(19,088)	$	3.04
Balance at June 30, 2014		1,057,211		2,529,146
Total vested and expected to vest shares (options)				2,211,018	$	2.73

(1) Options and RSAs granted prior to the adoption of the plan were subsumed under the plan once it was adopted.

The aggregate intrinsic value of stock options and RSAs outstanding, vested and expected to vest, and exercisable at June 30, 2014 was $1,576,042, $685,284, and $113,187, respectively.

Prior to the plan being established, the Company granted the equivalent of 7,167,585 RSAs to employees and non-employees in exchange for services with vesting specific to each individual award. As of June 30, 2014, 2,730,198 shares were vested, and 424,170 shares were cancelled or forfeited (unvested).

The following table summarizes information with respect to stock options outstanding at June 30, 2014:

			Options Outstanding			Options Exercisable
			Weighted					Weighted
			Average		Weighted-			Average
Exercise			Remaining		Average			Exercise
Price Per	Shares		Life		Exercise	Shares		Price Per
Share	Outstanding		(in years)		Price	Exercisable		Share
$		1,293,720		9.45	2.27		241,960	$	2.27
$		742,298		9.83	3.04		-	$	-
$		160,000		9.95	3.85		-	$	-
		2,196,018		9.61	2.65		241,960	$	2.27

Stock-based compensation expense

The fair value of employee stock options granted was estimated using the following weighted-average assumptions for the six months ended June 30, 2014:

	For the six months ended June 30, 2014

Expected volatility		76	%
Risk free rate		1.72	%
Dividend yield		0	%
Expected term (in years)		5.75

The expected term of the options is based on the average period the stock options are expected to remain outstanding based on the option’s vesting term and contractual terms. The expected stock price volatility assumptions for the Company's stock options were determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company's 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 Company's stock options. The expected dividend assumption is based on the Company's history and expectation of dividend payouts. Forfeitures were estimated based on the Company’s estimate of future cancellations.

Stock-based compensation for employees and non-employees related to options and RSAs recognized for the three and six months ended June 30, 2014 was as follows:

	For the three months ended June 30, 2014		For the six months ended June 30, 2014
Operating expenses
Selling, general and administrative	$	865,922	$	1,861,654

There was no stock based compensation in 2013.

No income tax benefit has been recognized related to stock-based compensation expense and no tax benefits have been realized from exercised stock awards. As of June 30, 2014, there were total unrecognized compensation costs of $4,678,804 related to these stock awards. These costs are expected to be recognized over a period of approximately 1.6 years.

Non-employee stock-based compensation expense

For the six months ended June 30, 2014, the Company issued options and restricted stock awards to non-employees in exchange for services with vesting specific to each individual award. The Company did not issue options and restricted stock awards to non-employees for the six months ended June 30, 2013. Non-employee stock-based compensation expense is recognized as the awards vest and totaled $594,103 and $1,380,903 for the three and six months ended June 30, 2014, respectively. The fair value of RSAs is calculated as the fair value of the underlying stock multiplied by the number of shares awarded.