Note 8. Stockholders’ Equity

Equity Compensation Plan

We adopted the amended and restated 2010 Equity and Performance Incentive Plan (the “2010 Plan”), effective as of February 8, 2010. Under the 2010 Plan, the number of shares of Common Stock that may be issued will not exceed in the aggregate 1,666,666 shares of Common Stock plus the number of shares of Common Stock relating to prior awards under the 2000 Omnibus Equity Incentive Plan that expire, are forfeited or are cancelled after the adoption of the 2010 Plan, subject to adjustment as provided in the 2010 Plan. Pursuant to an approval from the Company’s shareholders, the number of shares of Common Stock that may be issued under the 2010 Plan was increased by 750,000 shares of Common Stock in May 2013 and 333,333 shares in June 2016. No grants will be made under the 2010 Plan after the tenth anniversary of its effective date. Under our 2010 Plan, as of December 31, 2017, there were approximately 1.4 million shares available for grant.

We adopted the 2014 Inducement Award Plan (the “Inducement Plan”), effective as of May 13, 2014. Under the Inducement Plan, the number of shares of Common Stock that may be issued will not exceed in the aggregate 666,666 shares of Common Stock. Under our Inducement Plan, as of December 31, 2017, there were approximately 458,000 shares available for grant.

Stock Options

The following tables represent stock option activity for the years ended December 31, 2017 and 2016:

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding options at December 31, 2015		1,223,156		$	8.22		6.66	$	0
Granted		663,431		$	2.51
Exercised		(185	)	$	2.51
Forfeited		(504,559	)	$	7.12
Outstanding options at December 31, 2016		1,381,843		$	14.85		4.95	$	50
Granted		430,500		$	2.29
Exercised		(0	)	$	-
Forfeited		(1,080,153	)	$	5.90
Outstanding options at December 31, 2017		732,190		$	3.72		8.17	$	56
Options vested and expected to vest		679,822		$	3.83		8.06	$	50
Exercisable at December 31, 2017		231,039		$	6.72		5.15	$	3

A summary of additional information related to the options outstanding as of December 31, 2017 under the 2010 and 2014 Plans are as follows:

Option Plans Range of Exercise Prices		Number of Outstanding Options		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price

$	2.29 - $2.29		428,013		9.83	$	2.29
$	2.51-$2.51		115,438		8.13	$	2.51
$	2.52-$5.10		74,784		7.67	$	2.84
$	6.30-$11.73		73,805		2.13	$	7.86
$	12.48-$15.33		9,963		3.26	$	13.02
$	15.51-$18.39		30,187		2.46	$	17.73
			732,190

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been received by the option holders had they all exercised their options on December 31, 2017 and 2016. This amount will change based on the fair market value of our stock. The total aggregate intrinsic value of options exercised under our stock option plans was $0 for each of the years ended December 31, 2017 and 2016. The total fair value of options vested during 2017 and 2016 was $32,000 and $1.3 million, respectively.

During the first quarter of 2017, as a result of the resignation of the Company’s Chief Financial Officer (CFO), 50,000 total market-based stock options granted in 2014 and 2016 were forfeited. Previously recognized Stock-based compensation expense of approximately $58,000 was reversed in the first quarter of 2017, related to the portion of those market-based grants unvested at the time of the CFO’s resignation.

At December 31, 2017, there was $798,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a weighted average period of 2.65 years.

Employee Stock Purchase Plan

In the second quarter of 2011, to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward eligible employees and by motivating such persons to contribute to the growth and profitability of the Company, the Company’s Board of Directors and stockholders approved a new Employee Stock Purchase Plan and reserved 1,000,000 shares of our common stock for issuance effective as of May 15, 2011. The ESPP continues in effect for ten (10) years from its effective date unless terminated earlier by the Company. The ESPP consists of six-month offering periods during which employees may enroll in the plan. The purchase price on each purchase date shall not be less than eighty-five percent (85%) of the lesser of (a) the fair market value of a share of stock on the offering date of the offering period, or (b) the fair market value of a share of stock on the purchase date.

A total of 28,018 shares and 42,268 shares were issued under the ESPP during the years ended December 31, 2017 and 2016, respectively.

As of December 31, 2017, approximately 110,234 shares remain available for grant under the ESPP.

Restricted Stock Units

The following table represents RSU activity for the years ended December 31, 2017 and 2016:

	Number of Shares			Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding RSUs at December 31, 2015		565,965		$	6.75		1.41	$	1,715
Awarded		203,449		$	2.65
Released		(270,132	)	$	7.14
Forfeited		(147,361	)	$	5.57
Outstanding RSUs at December 31, 2016		351,921		$	4.59		1.06	$	908
Awarded		102,880		$	2.43
Released		(153,714	)	$	3.45
Forfeited		(164,758	)	$	5.78
Outstanding RSUs at December 31, 2017		136,329		$	2.80		0.80	$	329

At December 31, 2017, there was $206,000 of unrecognized compensation cost related to RSUs which is expected to be recognized over a weighted average period of 0.8 years.

Stock Repurchase Program

On April 27, 2005, our Board of Directors authorized the repurchase of up to 666,666 outstanding shares of our common stock. As of December 31, 2017, the maximum number of shares remaining that can be repurchased under this program was 602,467. The Company does not intend to repurchase shares without a pre-approval from its Board of Directors.

Stockholder Rights Agreement and Tax Benefits Preservation Plan

On April 20, 2016, our Board approved an amendment to the Company’s Rights Agreement, dated as of October 13, 2015 (the “Original Rights Agreement”), by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agent”). The amendment, which was subsequently executed on that date by the Company and the Rights Agent, changed the Final Expiration Date of the rights under the Original Rights Agreement (the “Original Rights”) from the close of business on October 10, 2016 to the close of business on April 20, 2016. As a result, the Original Rights have expired and the Original Rights Agreement has been terminated.

Also, on April 20, 2016, our Board approved and adopted a Section 382 Tax Benefits Preservation Plan, dated as of April 20, 2016, by and between the Company and Computershare Trust Company, N.A., as Rights Agent (the “Section 382 Tax Benefits Preservation Plan”). Pursuant to the Section 382 Tax Benefits Preservation Plan, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock, par value $0.0001, of the Company (the “Common Stock”). The dividend is distributable on May 3, 2016 to stockholders of record as of the close of business on May 3, 2016. Subject to the terms, provisions and conditions of the Section 382 Tax Benefits Preservation Plan, if the Rights become exercisable, each Right would initially represent the right to purchase from the Company one one-thousandth of a share (a “Unit”) of a newly-designated series of preferred stock, Series B Junior Participating Preferred Stock, par value $0.0001 per share, of the Company (the “Series B Preferred Stock”) for a purchase price of $3.00 (the “Purchase Price”). If issued, each Unit of Series B Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of the Common Stock. However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including, without limitation, any dividend, voting or liquidation rights. Until the rights become exercisable, they will not be evidenced by separate certificates and will trade automatically with shares of the Common Stock.

Our Board adopted the Section 382 Tax Benefits Preservation Plan in an effort to diminish the risk that the Company’s ability to utilize its net operating loss carryovers (collectively, the “NOLs”) to reduce potential future federal income tax obligations may become substantially limited. Under the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder by the U.S. Treasury Department, these NOLs may be “carried forward” in certain circumstances to offset any current and future taxable income and thus reduce federal income tax liability, subject to certain requirements and restrictions. However, if the Company experiences an “ownership change,” within the meaning of Section 382 of the Code (“Section 382”), its ability to utilize the NOLs may be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could therefore significantly impair the value of those assets. Section 382 and the Treasury regulations thereunder make the Company’s commercial risk from a Section 382 limitation triggering event particularly acute given the relative size of its current cash on hand to its market capitalization. As applied to the Company’s current cash position and current market capitalization, if the Company was to currently experience an ownership change, it would be subject to Section 382’s “non-business asset” limitation which would result in the Company permanently losing all $141 million of its NOLs.

The Section 382 Tax Benefits Preservation Plan is intended to act as a deterrent to any person or group acquiring beneficial ownership of 4.99% or more of the outstanding Common Stock without the approval of the Board (such person, an “Acquiring Person”). A person who acquires, without the approval of the Board, beneficial ownership (other than as a result of repurchases of stock by the Company, dividends or distributions by the Company or certain inadvertent actions by stockholders) of 4.99% or more of the outstanding Common Stock (including any ownership interest held by that person's Affiliates and Associates as defined under the Section 382 Tax Benefits Preservation Plan) could be subject to significant dilution. Stockholders who beneficially own 4.99% or more of the outstanding Common Stock prior to the first public announcement by the Company of the Board’s adoption of the Section 382 Tax Benefits Preservation Plan will not trigger the Section 382 Tax Benefits Preservation Plan so long as they do not acquire beneficial ownership of additional shares of the Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock) at a time when they still beneficially own 4.99% or more of such stock. In addition, the Board retains the sole discretion to exempt any person or group from the penalties imposed by the Section 382 Tax Benefits Preservation Plan.

In the event that a person becomes an Acquiring Person, each holder of a Right, other than Rights that are or, under certain circumstances, were beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right and payment of the Purchase Price, and subject to the terms, provisions and conditions of the Section 382 Tax Benefits Preservation Plan, a number of shares of the Common Stock having a market value of two times the Purchase Price.