4. Stock-Based Compensation

Stock Incentive Plans

On March 20, 2007, the Company’s Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 71,429 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. This plan was approved by the stockholders on November 2, 2007. The exercise price of stock options under the 2007 Stock Plan is determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 plan shall not exceed 7,143. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of June 30, 2019, there were 11,737 options issued and outstanding under the 2007 Stock Plan.

On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 85,714 shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. On October 22, 2013, the stockholders approved and adopted an amendment to the Company’s 2010 Stock Plan to increase the number of shares of Company’s common stock reserved for issuance under the Plan from 85,714 to 171,429. On May 15, 2015, the stockholders approved and adopted an amendment to the Company’s 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the Plan from 171,429 to 228,572. On August 25, 2016, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 228,572 to 400,000. On September 7, 2017, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 400,000 to 500,000. On September 24, 2018, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 500,000 to 1,000,000. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and expire between five and ten years after the grant date. As of June 30, 2019, there were 831,382 options issued and outstanding under the 2010 Stock Plan.

In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. There is no deferred compensation recorded upon initial grant date. Instead, the fair value of the stock-based payment is recognized as compensation expense over the stated vesting period.

The Company has applied fair value accounting for all stock-based payment awards since inception. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. There were no options granted during the three and six months ended June 30, 2019 and 2018. The assumptions used for the awards during the year ended December 31, 2018 are as follows:


Exercise price	$	0.69
Expected dividends		0	%
Expected volatility		86	%
Risk -free interest rate		2.75	%
Expected life of option		4	years

Expected dividends —The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.

Expected volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period.

Risk-free interest rate—The assumed risk-free rate used is a zero coupon U.S. Treasury security with a maturity that approximates the expected term of the option.

Expected life of the option—The period of time that the options granted are expected to remain unexercised. Options granted during 2018 have a maximum term of seven years. The Company estimates the expected life of the option based on the weighted average life between the dates that options become fully vested and the maximum life of options granted.

The Company records stock-based compensation based upon the stated vesting provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:

immediate vesting;

half vesting immediately and remaining over three years;

in full on one-year anniversary date of grant date;

quarterly over three years;

annually over three years;

one-third immediate vesting and remaining annually over two years;

one-half immediate vesting and remaining over nine months;

one quarter immediate vesting and remaining over three years;

one quarter immediate vesting and remaining over 33 months; and

monthly over three years.

A summary of stock option activity for the six months ended June 30, 2019 and the year ended December 31, 2018 is as follows:


		Weighted		Weighted Average Remaining	Aggregate
		Average Exercise		Contractual Life	Intrinsic
	Options	Price		(in years)	Value

Balance - December 31, 2017	359,076	$	53.93	4.60	$	1,800

Granted	671,500	$	0.69
Expired	(78,667)	$	67.02
Forfeited	(12,927)	$	23.72
Balance - December 31, 2018	938,982	$	15.18	6.19	$	—

Expired	(52,419)	$	68.96
Forfeited	(43,444)	$	8.30

Balance - June 30, 2019 - outstanding	843,119	$	12.19	5.85	$	—

Balance - June 30, 2019 - exercisable	289,660	$	32.81	4.80	$	—

Grant date fair value of options granted - June 30, 2019		$	—

Weighted average grant date fair value - June 30, 2019		$	—

Grant date fair value of options granted - December 31, 2018		$	301,000

Weighted average grant date fair value - December 31, 2018		$	0.45

Stock-based compensation expense included in operating expenses related to stock options issued to employees and consultants for the three months ended June 30, 2019 and 2018 was $91,000 and $557,000 respectively, and $155,000 and $1.2 million for the six month ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, total unrecognized stock-based compensation expense related to stock options was $422,000, which is expected to be expensed through March 2021.

The FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The Company did not record any excess tax benefits during the three and six months ended June 30, 2019 and 2018.