|3 Months Ended|
Mar. 31, 2020
|Share-based Payment Arrangement [Abstract]|
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. Our board of directors and stockholders approved an increase of 1,300,000 shares in June 2016, an additional increase of 3,250,000 shares in June 2017, and an additional increase of 4,000,000 shares in June 2019, bringing the total shares allowed under the plan to 9,950,000.
We account for stock options in accordance with ASC Topic 718, Compensation-Stock Compensation. We use the Black-Scholes option valuation model for estimating fair value at the date of grant. 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 is the estimated period of time that options granted are expected to be outstanding. We have estimated the expected life of 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.
During the three months ended March 31, 2020 and 2019, we granted incentive stock options for the purchase of 10,000 and 40,000 shares, respectively, of our common stock. The stock options granted in 2020 have an exercise price of $1.74 and the stock options granted in 2019 have an exercise price range of $1.52 per share to $2.98 per share. The stock options have a term of 10 years and vest quarterly over sixteen quarters. For the three months ended March 31, 2020 and 2019, the options granted had an aggregate grant date fair value of $12,000 and $60,000, respectively, utilizing the Black-Scholes option valuation model.
We estimated the fair value of stock options awarded during the three months ended March 31, 2020 and 2019 using the Black-Scholes option valuation model. The fair values of stock options granted for the periods were estimated using the following assumptions:
Stock-based compensation expense related to stock options was $67,000 and $96,000 for the three months ended March 31, 2020 and 2019, respectively. 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 months ended March 31, 2020 and 2019, we applied a forfeiture rate of 10%, which is reflected in our stock-based compensation expense related to stock options.
Stock Option Award Activity
The following is a summary of our stock option activity during the three months ended March 31, 2020:
The following table presents information related to stock options outstanding and exercisable at March 31, 2020:
As of March 31, 2020, there was $436,000 of unrecognized compensation expense related to unvested employee stock options, which is expected to be recognized over a weighted-average period of approximately 2.2 years. The aggregate intrinsic values of outstanding stock options and vested stock options as of March 31, 2020 were $0 and $0, respectively, as no options had an exercise price less than the closing fair market value of our common stock on March 31, 2020 of $1.48 per share.
Restricted Stock Units Activity
We account for restricted stock units issued at fair value, based on the market price of our stock on the date of grant, net of estimated forfeitures. RSUs issued in connection with our employee incentive programs typically vest within 10 days of grant. All other RSUs, primarily issued as long term incentives, generally vest annually over three to four years.
During the three months ended March 31, 2020 and 2019, we recorded $1.3 million and $0.9, million respectively, of stock-based compensation related to the restricted stock unit shares that had been issued to-date.
A summary of restricted stock unit activity for the three months ended March 31, 2020 is as follows:
As of March 31, 2020, there was $6.7 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 2.5 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.
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. The share price on the date of issuance was $5.06 per share.
In June 2019, the market-based award was modified to increase the number of restricted stock units to 500,000 and to decrease the applicable share price. Additionally, the performance period was extended to September 30, 2022. The share price on the date of modification was $2.73 per share.
In December 2019, we granted 200,000 market-based restricted stock units to an executive. The restricted stock units are subject to the same market-based vesting requirements discussed for the award granted in August 2016 and modified in June 2019. The share price on the date of issuance was $2.15 per share and the fair value was determined to be $26,000 using a Monte Carlo simulation.
Once earned, the restricted stock units vest 50% on the date such restricted stock units become earned and 50% on September 30, 2022. 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. For the three months ended March 31, 2020 and 2019, we recognized $13,000 and $6,000, respectively, of stock compensation expense in connection with market-based awards. For the three months ended March 31, 2020, $2.000 is included in research and development expenses and $11,000 is included in sales, marketing and administration expenses. For the three months ended March 31, 2019, $6,000 was included in sales, marketing and administration expenses. The unamortized expense related to these awards is $127,000 and is expected to be recognized over 2.5 years.
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. If paid in the form of equity, the expense is included in the above disclosures for stock options or restricted stock units as applicable.
Total stock-based compensation recorded in the condensed consolidated statements of comprehensive loss is allocated as follows:
The entire disclosure for share-based payment arrangement.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef