Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

v3.10.0.1
STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION
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 initially permitted for the issuance of equity-based instruments covering up to a total of 1,400,000 shares of common stock. In June 2016, our board of directors and stockholders approved an increase of 1,300,000 shares and in June 2017 approved an additional increase of 3,250,000 shares of common stock bringing the total shares allowed under the plan to 5,950,000.

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. For non-employees we use an estimated expected life of the remaining term of the stock option grant, which is initially ten years. 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 Non-Employees
 
During the three and nine months ended September 30, 2017, we granted incentive stock options for the purchase of 131,500 and 299,880 shares, respectively, of our common stock to our employees. The stock options have an exercise price range of $4.36 per share to $4.68 per share with a term of 10 years. Of the options granted in 2017, 125,880 options vested upon grant, 91,500 vested nine days after grant and the remaining 82,500 stock options vest quarterly over sixteen quarters. The options granted had an aggregate grant date fair value of $356,000 and $802,000 for the three and nine months ended September 30, 2017, respectively, utilizing the Black-Scholes option valuation model.

During the three and nine months ended September 30, 2018, we granted incentive stock options for the purchase of 110,000 and 227,500 shares, respectively, of our common stock to our employees. The stock options have an exercise price range of $4.12 per share to $5.96 per share with a term of 10 years. The stock options vest quarterly over sixteen quarters. The options granted had an aggregate grant date fair value of $345,000 and $738,000, for the three and nine months ended September 30, 2018, respectively, utilizing the Black-Scholes option valuation model.
 
We estimated the fair value of stock options awarded during the nine months ended September 30, 2017 and 2018 using the Black-Scholes option valuation model. The fair values of stock options granted for the periods were estimated using the following assumptions: 
 
Stock Option Grants Awarded During the Nine Months Ended September 30, 2017
 
Stock Option Grants Awarded During the Nine Months Ended September 30, 2018
Stock Price
$4.36 to $4.68
 
$4.12 to $5.96
Dividend Yield
0.00%
 
0.00%
Expected Volatility
60%
 
70%
Risk-free interest rate
1.95% - 2.14%
 
2.50% - 2.98%
Expected Life
7 years
 
7 years

 
Stock-based compensation expense related to stock options for employees was $100,000 and $125,000 for the three months ended September 30, 2017 and 2018, respectively, and was $332,000 and $347,000 for the nine months ended September 30, 2017 and 2018, respectively, exclusive of options issued in connection with our incentive programs which are discussed below. For all employee stock options, we 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. During the three and nine months ended September 30, 2017 and 2018, we applied a forfeiture rate of six percent, which is reflected in our stock-based compensation expense related to stock options.
              In January 2017, we modified certain stock options previously granted to a former executive. The modification was made in connection with the executive’s termination. The modification included accelerated vesting of stock options to purchase 8,752 shares of common stock as well as an extension of the exercise period for all vested shares, including stock options to purchase 17,504 shares of common stock. As a result of the modification, additional stock compensation expense of $19,000 was recognized for the nine months ended September 30, 2017. There was no expense related to the modification during the nine months ended September 30, 2018.
     For stock options paid in consideration of services rendered by non-employees, we recognize compensation expense in accordance with the requirements of ASC 505-50. Non-employee stock option grants that do not vest immediately upon grant are recorded as an expense over the vesting period. At the end of each financial reporting period prior to performance, the value of these stock options, as calculated using the Black-Scholes option valuation model, is determined, and compensation expense recognized or recovered during the period is adjusted accordingly. Since the fair market value of stock options granted to non-employees is subject to change in the future, the amount of the future compensation expense is subject to adjustment until the common stock options are fully vested. Stock-based compensation expense related to stock options for consultants was $2,000 for the three months ended September 30, 2017 and was a reduction of expense of $2,000 for the three months ended September 30, 2018. Stock-based compensation expense related to stock options for consultants was $7,000 and $6,000 for the nine months ended September 30, 2017 and 2018, respectively, exclusive of options issued in connection with our incentive programs which are discussed below.

Stock Option Award Activity
 
The following is a summary of our stock option activity during the nine months ended September 30, 2018
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Grant Date
Fair Value
 
Weighted
Average
Remaining
Life In
Years
Outstanding, January 1, 2018
1,082,490

 
$
4.87

 
$
3.00

 
8.38
Granted
227,500

 
4.77

 
3.24

 
9.31
Exercised
(4,692
)
 
2.91

 
1.75

 
Canceled / Forfeited
(70,331
)
 
4.73

 
2.89

 
Outstanding, September 30, 2018
1,234,967

 
$
4.86

 
$
3.06

 
7.95

 
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Grant Date
Fair Value
 
Weighted
Average
Remaining
Life In
Years
Exercisable, January 1, 2018
704,303

 
$
5.08

 
$
3.17

 
8.15
Vested
114,591

 
4.76

 
2.90

 
7.54
Exercised
(4,692
)
 
2.91

 
1.75

 
Canceled / Forfeited
(17,057
)
 
4.72

 
2.84

 
Exercisable, September 30, 2018
797,145

 
$
5.05

 
$
3.15

 
7.43


The following table presents information related to stock options outstanding and exercisable at September 30, 2018
Options Outstanding
 
Options Exercisable
Exercise
Price
 
Outstanding
Number of
Options
 
Weighted
Average
Remaining
Life In
Years
 
Exercisable
Number
of Options
$1.93 – $2.00
 
146,183

 
7.34
 
90,323

$3.83 – $4.92
 
646,984

 
8.63
 
370,907

$5.01 – $6.00
 
281,500

 
6.04
 
207,455

$6.18 – $7.20
 
70,000

 
6.15
 
53,753

$7.54 – $7.80
 
67,800

 
6.32
 
54,540

$8.06 – $12.98
 
22,500

 
6.30
 
20,167

 
 
1,234,967

 
7.43
 
797,145


 
As of September 30, 2018, there was $1.2 million of unrecognized compensation expense related to unvested employee stock options, which is expected to be recognized over a weighted-average period of approximately 3.0 years. The aggregate intrinsic values of outstanding stock options and vested stock options as of September 30, 2018 were $308,000 and $190,000, respectively, which represent options whose exercise price was less than the closing fair market value of our common stock on September 30, 2018 of $4.06 per share.

 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. During the three months ended September 30, 2017 and 2018 we recorded $564,000 and $1.2 million, respectively, of stock-based compensation related to the restricted stock unit shares that had been issued to-date. During the nine months ended September 30, 2017 and 2018 we recorded $1.7 million and $3.3 million, respectively, of stock-based compensation related to the restricted stock unit shares that had been issued to-date.
 In January 2017, we modified certain restricted stock units previously granted to a former executive. The modification was made in connection with the executive’s termination. The modification included accelerated vesting of 8,815 units which resulted in additional stock compensation expense of $36,000 for the nine months ended September 30, 2017. There was no expense related to the modification during the three and nine months ended September 30, 2018.
A summary of restricted stock unit activity for the nine months ended September 30, 2018 is as follows: 
 
Number of
Restricted Share
Units
 
Weighted-
Average
Grant-Date Fair
Value Per Share
Outstanding at January 1, 2018
1,476,858

 
$
4.96

Granted
1,379,905

 
4.81

Vested
(621,263
)
 
4.93

Forfeited
(164,201
)
 
5.16

Outstanding at September 30, 2018
2,071,299

 
$
4.85


 
As of September 30, 2018, there was $6.9 million of unrecognized compensation expense related to unvested restricted stock unit agreements which is expected to be recognized over a weighted-average period of approximately 2.3 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.
 
Market-based Awards
 
In August 2016, we granted 250,000 market-based restricted stock units to an executive. The restricted stock units are subject to market-based vesting requirements, measured quarterly, based on the average of (a) the average high daily trading price of our common stock for each trading day during the last month of the applicable calendar quarter and (b) the average low daily trading price of our common stock for each trading day during the last month of the applicable calendar quarter, each as reported by The Nasdaq Stock Market, LLC. The restricted stock units are eligible to be earned on a quarterly basis based on a linear interpolation of the applicable share price, or in the case of a liquidation event, on the day of (or in connection with) such liquidation event based on the applicable transaction price. Once earned, the restricted stock units vest 50% on the date such restricted stock units become earned and 50% on September 30, 2019. We recognize compensation expense for restricted stock units with market conditions using a graded vesting model, based on the probability of the performance condition being met, net of estimated pre-vesting forfeitures. The share price on the date of issuance was $5.06 per share. For each of the three months ended September 30, 2017 and 2018, we recognized $6,000 of stock compensation expense in connection with this award. For the nine months ended September 30, 2017 and 2018, we recognized $19,000 and $18,000, respectively, of stock compensation expense in connection with this award, which is included in general and administrative expenses. The unamortized expense related to this award is $24,000 and is expected to be recognized over 1.0 year.

Incentive Bonus Awards

We provide eligible employees, including executives, the opportunity to earn bonus awards upon achievement of predetermined performance goals and objectives. The purpose is to reward attainment of company goals and/or individual performance objectives, with award opportunities expressed as a percentage of base salary. Bonuses can be measured and paid quarterly and/or annually, and are paid in cash, equity or a combination of cash and equity, in the discretion of our compensation committee.

2017 Incentive Bonus Program

During 2017, our employees and executives participated in the 2017 Incentive Bonus Program. The program provided for the award of quarterly and annual bonuses to our employees and executive officers if certain performance goals, based on company-wide billings, expenses and certain other individual non-monetary targets, were attained in quarterly and annual performance periods during our 2017 fiscal year.  The awards contained a combination of service conditions and performance conditions based on the achievement of specified performance thresholds. The awards were based on each individual’s annual salary multiplied by a bonus multiplier percentage which had been determined by our compensation committee. The plan also allowed for additional discretionary awards to non-executive employees up to 10% of the total base salaries of non-executive employees. Additionally, the annual bonus, as it related to executive employees, was subject to the achievement of certain stock price thresholds for the 10 trading days ending on the last trading day of 2017. The bonuses were to be paid in the form of cash, stock options, restricted stock, or a combination thereof. The number of shares underlying equity awards granted to each employee were determined based on the performance bonus amount to be paid in equity, based in part by utilizing the stock price on the grant date. We recognized compensation expense for the total amount of the bonuses earned during the period earned. For the three and nine months ended September 30, 2017, we recorded $193,000 and $943,000 of expense related to the 2017 incentive bonus plan as the performance conditions were achieved. Of the expense recorded for the three months ended September 30, 2017, $153,000 is included in research and development expenses and $40,000 is included in general and administrative expenses. Of the expense recorded for the nine months ended September 30, 2017, $584,000 is included in research and development expenses and $359,000 is included in general and administrative expenses. There was no expense for the period ended September 30, 2018 in connection with this program.

2017 Non-executive Bonus Program

Effective July 1, 2017, our non-executive employees participated in the 2017 Non-executive Bonus Program. The program provided for the award of up to 300,000 restricted stock units to be awarded to non-executive employees and consultants based upon the achievement of certain performance conditions before the end of the year. Vesting of the restricted stock units were subject to continued service over the vesting period. Based on the achievement of performance conditions, 180,528 restricted stock units were granted on January 25, 2018 at an aggregate grant date fair value of $1.1 million. The awards vest in four tranches with 25% of the shares vesting on each April 1, 2018, 2019, 2020 and 2021. For the three and nine months ended September 30, 2018, we recorded $77,000 and $242,000 of stock compensation expense, respectively, related to the 2017 Non-executive Bonus Program. Additionally, upon grant we released the accrual of $436,000 which had been recorded as of December 31, 2017 related to performance under this program. Of the expense recorded for the three months ended September 30, 2018, $62,000 and $15,000 is included in research and development expenses and general and administrative expenses, respectively. Of the expense recorded for the nine months ended September 30, 2018, $195,000 and $47,000 is included in research and development expenses and general and administrative expenses, respectively. There was no expense recorded for the three and nine months ended September 30, 2017 as the achievement of the performance conditions were not probable.

2018 Incentive Bonus Program

During 2018, our employees and executives, exclusive of the CEO, are participating in the 2018 Incentive Bonus Program. The program provides for the award of quarterly and annual bonuses to our employees and executive officers if certain performance goals, based on company-wide billings, expenses and certain other individual non-monetary targets, are attained in quarterly and annual performance periods during our 2018 fiscal year.  The awards contain a combination of service conditions and performance conditions based on the achievement of specified performance thresholds. The awards are based on each individual’s annual salary multiplied by a bonus multiplier percentage which has been determined by our compensation committee. The plan also allows for additional discretionary awards to non-executive employees up to 10% of the total base salaries of non-executive employees. The bonuses will be paid in the form of cash, stock options, restricted stock, or a combination thereof. The number of shares underlying equity awards granted to each employee will be determined based on the performance bonus amount to be paid in equity, divided by our closing stock price on the grant date. We recognized compensation expense for the total amount of the bonuses earned during the period earned. For the three and nine months ended September 30, 2018, we recorded a total of $408,000 and $1.2 million, respectively, of expense related to the 2018 incentive bonus plan as the performance conditions were either achieved or in the case of the annual awards, are expected to be achieved. Included in the expense for 2018 was $919,000 related to quarterly awards and $292,000 related to the annual awards. The quarterly awards for the first and second quarters were issued in the form of restricted stock units in May 2018 and August 2018, respectively, and were vested in full during the month of grant. The quarterly award for the third quarter will be issued in the form of restricted stock units to be granted and vested in November 2018. We record an accrual for the annual component of the bonus program as the annual award will not be issued until after the year has ended. Of the expense recorded for the three months ended September 30, 2018, $269,000 is included in research and development expenses and $139,000 is included in general and administrative expenses. Of the expense recorded for the nine months ended September 30, 2018, $770,000 is included in research and development expenses and $441,000 is included in general and administrative expenses. There was no expense for the period ended September 30, 2017 in connection with this program as the program was not in place at that time. As of September 30, 2018, there was $608,000 included in accrued salaries and payroll related expenses related to the 2018 Incentive Bonus Program.

2018 CEO Incentive Bonus Program

During 2018, our CEO is participating in the 2018 CEO Incentive Bonus Program. The program provides for the award of an annual bonus to our CEO if certain performance goals, based on company-wide billings and expenses are attained in the annual performance period during our 2018 fiscal year. Additionally, the annual bonus is subject to the achievement of certain stock price thresholds for the 10 trading days ending on December 19, 2018. We recognize compensation expense for the total amount of the bonus earned during the period earned. For the three months and nine months ended September 30, 2018, we recorded compensation expense of $14,000 and $42,000, respectively, as certain of the achievements of the performance conditions were considered probable. The expense was included in general and administrative expenses. As of September 30, 2018, there was $42,000 included in accrued salaries and payroll related expenses related to the 2018 CEO Incentive Bonus Program.

Total equity-based compensation costs recorded in the condensed consolidated statements of operations is allocated as follows: 
 
 
Three Months Ended September 30, 2017
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
Nine Months Ended September 30, 2018
Research and development
 
 
 
 
 
 
 
 
Employees
 
$
304,000

 
$
672,000

 
$
839,000

 
$
1,975,000

Non-employees
 
20,000

 
14,000

 
61,000

 
58,000

Total research and development
 
324,000

 
686,000

 
900,000

 
2,033,000

 
 
 
 
 
 
 
 
 
General and administrative
 
 
 
 
 
 
 
 
Employees and directors
 
314,000

 
337,000

 
998,000

 
1,471,000

Non-employees
 
28,000

 
345,000

 
126,000

 
454,000

Total general and administrative
 
342,000

 
682,000

 
1,124,000

 
1,925,000

 
 
 
 
 
 
 
 
 
Total equity-based compensation
 
$
666,000

 
$
1,368,000

 
$
2,024,000

 
$
3,958,000