8. Stock incentive plans

The board of directors approved and adopted a 2014 Equity Incentive Plan (2014 Plan) to become effective upon the close of the IPO that occurred on February 20, 2014.  A total of 895,346 shares of common stock were reserved for issuance pursuant to the 2014 Plan. In addition, the shares reserved for issuance under the 2014 Plan also includes shares returned to the 2012 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to such previously granted awards under 2012 Plan is 2,328,569 shares).  The number of shares available for issuance under the 2014 Plan will also include an annual increase on the first day of each fiscal year beginning in 2015, equal to the least of: (i) 895,346 shares; (ii) 4% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year; or (iii) such other amount as our board of directors may determine.

The Company had a 2012 Stock Incentive Plan (2012 Plan) under which the Company reserved 1,216,772 shares of common stock, to be issued in connection with stock options and other equity awards. The 2012 Plan provided for option grants at exercise prices not less than 100% of the fair value of common stock on the date of grant. As of February 14, 2014, the 2012 Plan was terminated and the 2014 Plan was created in its place.

Previously, the Company had a 2002 Stock Incentive Plan (2002 Plan), as amended. As of March 12, 2012, the 2002 Plan was terminated and the 2012 Plan was created in its place. On termination, the 2002 Plan had 1,424,540 shares of common stock outstanding. Any shares returned to the 2002 Plan as a result of expiration or termination of equity awards (up to 1,424,646 shares) are added to the 2012 Plan Share reserve.

Options typically expire ten years from the date of grant and vest over one to four year terms. Options have been granted to employees and consultants of the Company at the deemed fair market value, as determined by the board of directors, of the shares underlying the options at the date of grant.

There were no grants issued for the three months ended March 31, 2014.  On April 1, 2014, the board approved grants totaling 632,694 shares to board members, executive officers and certain key employees with an exercise price of $16.62 per share.

The activity for stock options under the Plans for the three months ended March 31, 2014 is as follows:

Employee stock-based compensation expense for the three months ended March 31, 2014 and March 31, 2013 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures at a rate of  5.7% based on the Company’s historical option cancellations. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

For the three months ended March  31, 2014 and March 31, 2013, stock-based compensation expense recognized under ASC 718, included in cost of sales, sales and marketing expense, general and administrative expense, and research and development expense, totaled $122 and $24, respectively.

The board approved and adopted an employee stock purchase plan (ESPP Plan) to be effective upon the completion of the initial public offering that occurred on February 20, 2014.  The first offering period of this plan began on March 1, 2014.  Enrollment dates will continue on the exercise date and will end on either the first trading date after September 1^st or March 1^st.  There are two offering periods per year.  The exercise price will be the lesser of 85% of the stock price on the enrollment date or the purchase date.  The total number of shares available for issuance under the ESPP Plan is 179,069.  The number of shares available for issuance under the ESPP Plan will be increased on the first day of each fiscal year beginning with the 2015 fiscal year equal to the least of (i) 179,069 shares of common stock, (ii) one-and-a-half percent (1.5%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (iii) an amount determined by the Administrator.  The Company recorded $9 of compensation expense for the three months ended March 31, 2014 associated with this Plan, which is included in the total ASC 718 stock-based compensation expense.