EQUITY

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

EQUITY

The Company’s Certificate of Incorporation, as amended, authorizes the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock.” The Preferred Stock may be divided into such number of series and with the rights, preferences, privileges and restrictions as the Board of Directors may determine.

Series A Convertible Preferred Stock

The Company had 37,467 shares of Series A Preferred outstanding as of June 30, 2019 and December 31, 2018. At June 30, 2019 and December 31, 2018, the Company had cumulative undeclared dividends of $0. The Company issued the holders of Series A Preferred 591,803 and 999,633 shares of common stock on March 31, 2019 and June 30, 2019, respectively, as payment of dividends due on these dates.

Series B Convertible Preferred Stock

The Company had 239,400 shares of Series B Preferred stock, par value $0.01 per share (“Series B Preferred”), outstanding as of June 30, 2019 and December 31, 2018. At June 30, 2019 and December 31, 2018, the Company had cumulative undeclared dividends of approximately $8,000. There were no conversions of Series B Preferred into common stock during the three and six months ended June 30, 2019 and 2018.

Common Stock

 The following table summarizes common stock activity for the six months ended June 30, 2019:

	Common Stock
Shares outstanding at December 31, 2018		98,223,632
Shares issued as payment of stock dividend on Series A Preferred		1,591,436
Shares issued as payment of stock dividend on Series C Preferred		424,738
Shares issued pursuant to option exercises		351,334
Shares issued for cash		5,954,545
Shares outstanding at June 30, 2019		106,545,685

In May 2019, the Company completed a registered direct offering of 5,954,545 shares of its common stock at a price of $1.10 per share, resulting in gross proceeds to the Company of approximately $6,550,000. Net proceeds to the Company were approximately $6,095,000 after recognition of offering expenses. The Company intends to use the net proceeds received from the sale of the common stock for general corporate purposes.

The shares of common stock described above were offered by the Company pursuant to a shelf registration statement filed with the SEC on June 28, 2018 and declared effective on July 10, 2018.

During the six months ended June 30, 2019, the Company issued 351,334 shares of its common stock pursuant to the exercise of stock options, resulting in proceeds to the Company of approximately $166,000.

Warrants

The following table summarizes warrant activity for the following periods:

	Warrants		Weighted- Average Exercise Price
Balance at December 31, 2018		1,813,856	$	0.19
Granted		—		—
Expired/Canceled		—		—
Exercised		—		—
Balance at June 30, 2019		1,813,856	$	0.19

As of June 30, 2019, warrants to purchase 1,813,856 shares of common stock at exercise prices ranging from $0.01 to $1.46 were outstanding. All warrants are exercisable as of June 30, 2019 except for an aggregate of 1,643,856 warrants, which become exercisable only upon the attainment of specified events. Such warrants expire at various dates through September 2028. The intrinsic value of warrants outstanding at June 30, 2019 was approximately $20,000. The Company has excluded from this computation any intrinsic value of the 1,493,856 warrants issued to the Series A Preferred stockholders due to such warrants becoming exercisable only upon conversion of Series A Preferred into shares of Common Stock.

Stock-Based Compensation

The Company’s 1999 Stock Award Plan (the “1999 Plan”) was adopted by the Company’s Board of Directors on December 17, 1999. Under the terms of the 1999 Plan, the Company could, originally, issue up to 350,000 non-qualified or incentive stock options to purchase Common Stock of the Company. During the year ended December 31, 2014, the Company subsequently amended and restated the 1999 Plan, whereby it increased the share reserve for issuance to approximately 7.0 million shares of the Company’s common stock. Subsequently, in February 2018, the Company amended and restated the 1999 Plan, whereby it increased the share reserve for issuance by an additional 2.0 million shares. The 1999 Plan prohibits the grant of stock option or stock appreciation right awards with an exercise price less than fair market value of the Company’s common stock on the date of grant. The 1999 Plan also generally prohibits the “re-pricing” of stock options or stock appreciation rights, although awards may be bought-out for a payment in cash or the Company’s stock. The 1999 Plan permits the grant of stock-based awards other than stock options, including the grant of “full value” awards such as restricted stock, stock units and performance shares. The 1999 Plan permits the qualification of awards under the plan (payable in either stock or cash) as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. The number of options issued and outstanding and the number of options remaining available for future issuance are shown in the table below. The number of authorized shares available for issuance under the plan at June 30, 2019 was 374,245.

The Company estimates the fair value of its stock options using a Black-Scholes option-valuation model, consistent with the provisions of ASC No. 718, Compensation – Stock Compensation. The fair value of stock options granted is recognized to expense over the requisite service period. Stock-based compensation expense is reported in general and administrative, sales and marketing, engineering and customer service expense based upon the departments to which substantially all of the associated employees report and credited to additional paid-in capital. Stock-based compensation expense related to equity options was approximately $181,000 and $347,000 for the three and six months ended June 30, 2019, respectively.

ASC No. 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option-valuation model, which incorporates various assumptions including volatility, expected life, and interest rates. The Company is required to make various assumptions in the application of the Black-Scholes option-valuation model. The Company has determined that the best measure of expected volatility is based on the historical weekly volatility of the Company’s common stock. Historical volatility factors utilized in the Company’s Black-Scholes computations for the six months ended June 30, 2019 and 2018 ranged from 57% to 84%. The Company has elected to estimate the expected life of an award based upon the SEC approved “simplified method” noted under the provisions of Staff Accounting Bulletin Topic 14. The expected term used by the Company during the six months ended June 30, 2019 and 2018 was 5.17 years. The difference between the actual historical expected life and the simplified method was immaterial. The interest rate used is the risk-free interest rate and is based upon U.S. Treasury rates appropriate for the expected term. The interest rate used in the Company’s Black-Scholes calculations for the six months ended June 30, 2019 and 2018 was 2.6%. Dividend yield is zero, as the Company does not expect to declare any dividends on the Company’s common stock in the foreseeable future.

In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation is a critical assumption. The Company has estimated an annualized forfeiture rate of approximately 0% for corporate officers, 4.1% for members of the Board of Directors and 6.0% for all other employees. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience.

A summary of the activity under the Company’s stock option plans is as follows:

	Options			Weighted-Average Exercise Price
Balance at December 31, 2018		7,227,248		$	1.34
Granted		595,000		$	0.96
Expired/Cancelled		(238,568	)	$	1.57
Exercised		(351,334	)	$	0.47
Balance at June 30, 2019		7,232,346		$	1.34

The intrinsic value of options exercisable at June 30, 2019 was approximately $124,000. The aggregate intrinsic value for all options outstanding as of June 30, 2019 was approximately $144,000. The weighted-average grant-date per share fair value of options granted during the six months ended June 30, 2019 was $0.52. The weighted-average grant-date per share fair value of options granted during the six months ended June 30, 2018 was $0.97. At June 30, 2019, the total remaining unrecognized compensation cost related to unvested stock options amounted to approximately $925,000, which will be recognized over a weighted-average period of 2.0 years.

Stock-based compensation related to equity options, including options granted to certain members of the Company’s Board of Directors, has been classified as follows in the accompanying condensed consolidated statements of operations (in thousands):  

	Three Months Ended  June 30,				Six Months Ended  June 30,
	2019		2018		2019		2018
Cost of revenue	$	4	$	5	$	7	$	11
General and administrative		97		246		190		462
Sales and marketing		42		63		81		123
Research and development		38		58		69		112
Total	$	181	$	372	$	347	$	708