NOTE 8— STOCK-BASED COMPENSATION

 

2014 Omnibus Incentive Plan

 

In January 2014, our board of directors approved the 2014 Omnibus Incentive Plan and amended and restated the plan in March 2014. Our stockholders approved the Amended and Restated 2014 Omnibus Incentive Plan, or the 2014 Plan, in March 2014. Our 2014 Plan permits for the issuance of equity based instruments covering up to an initial total of 1,400,000 shares of common stock.

 

Option Valuation

 

We have computed the fair value of options granted to employees and non-employees using the Black-Scholes option valuation model. The compensation costs of non-employee arrangements are subject to re-measurement at each reporting period over the vesting terms as earned. Option forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it is material. The expected term used for options issued to non-employees is the contractual life and the expected term used for options issued to employees is the estimated period of time that options granted are expected to be outstanding. We have estimated the expected life of our employee stock options using the “simplified” method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to our lack of sufficient historical data. Since our stock has not been publicly traded for a sufficiently long period of time, we are utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within our industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

 

Stock Options to Employees and Consultants

 

During the year ended December 31, 2014, we granted incentive stock options for the purchase of 491,200 shares of our common stock to our employees and consultants. The options have an exercise price range of $5.79 per share to $8.06 per share with a term ranging from three years to ten years. The options vest over various periods, generally quarterly over sixteen quarters. The options had an aggregate grant date fair value of $2.0 million utilizing the Black-Scholes option valuation model.

 

We estimated the fair value of stock options awarded during the year ended December 31, 2014 using the Black-Scholes option valuation model. The fair values of stock options granted for the year were estimated using the following assumptions:

 

 

Stock-based compensation expense related to stock options for both employees and consultants was $697,211 for the year ended December 31, 2014 and there was no expense for the year ended December 31, 2013. As of December 31, 2014, the unamortized portion will be expensed over a weighted average period of 3.2 years. We are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. For the year ended December 31, 2014, there was no forfeiture rate applied as there have not been any forfeitures since the grant of awards nor currently do we expect to incur any for those shares currently awarded.

 

Stock Option Award Activity

 

There were no stock options issued in 2013. The following is a summary of our stock option activity during the year ended December 31, 2014:

 

 

The following table presents information related to stock options outstanding and exercisable at December 31, 2014:

 

 

As of December 31, 2014, there was $1,233,327 of unrecognized compensation expense related to unvested employee stock option agreements, which is expected to be recognized over a weighted-average period of approximately 3.2 years.

 

Restricted Stock Units Activity

 

We account for restricted stock units issued to employees at fair value, based on the market price of our stock on the date of grant, net of estimated forfeitures. The fair value of non-employee restricted stock units awarded  are remeasured as the awards vest, and the resulting increase in fair value, if any, is recognized as expense in the period the related services are rendered. We recorded $332,563 of stock-based compensation related to the 174,500 restricted stock unit shares that were granted during the year ended December 31, 2014. Shares vested during the year ended December 31, 2014 were 43,233 shares of which 3,915 shares were surrendered by the employees for payment of payroll tax withholding liabilities.

 

A summary of restricted stock unit activity for the years ended December 31, 2014 is as follows:

 

 

As of December 31, 2014, there was $604,321 of unrecognized compensation expense related to unvested employee restricted stock unit agreements which is expected to be recognized over a weighted-average period of approximately 1.6 years. For restricted stock unit awards subject to graded vesting, we recognize compensation cost on a straight-line basis over the service period for the entire award.

 

Total equity-based compensation cost recorded in the consolidated statements of operations, which includes the value of stock options and restricted stock units issued to employees, directors and non-employees for services, is allocated as follows: