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Equity Incentive Plan
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2014
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
Note 7 — Equity Incentive Plan
On May 17, 2013, the Company adopted the 2013 Equity Incentive Plan (the “Plan”) and reserved 487,932 shares of common stock for issuance under the Plan, including stock options, stock awards and stock bonuses. The maximum aggregate number of shares that may be granted under the Plan will be increased effective the first day of each of the Company’s fiscal quarters provided that the number of shares that may be granted under the Plan does not exceed in the aggregate 839,983 shares. At September 30, 2014, 219,580 shares of common stock were available for issuance under the Plan.
The Plan is administered by the Compensation Committee of the Company’s Board of Directors. The persons eligible to participate in the Plan are employees (including officers), members of the Board of Directors, consultants and other independent advisors and contractors who provide services to the Company. Options issued under the Plan may have a term of up to ten years and may have variable vesting. The typical vesting schedule for stock options awarded under the Plan is a four year annual vesting schedule for employees and a one year quarterly vesting schedule for Board members.
During the nine months ended September 30, 2014, the Company granted 232,100 stock options to employees and executives and 51,126 stock options to Board members and issued 32,525 shares related to prior Board service through December 31, 2013 and 6,378 shares to a consultant. These stock option grants and share issuances reduced the shares of common stock available for issuance under the Plan. In addition, the Company granted 320,000 stock options to executives that are contingent upon the Company receiving shareholder approval to increase the shares available for issuance under the Plan at either of the Company’s next two annual shareholder meetings (the “Contingent Grants”). The estimated fair value of stock options granted under the Plan, including the Contingent Grants, in the nine months ended September 30, 2014, calculated using the Black-Scholes option valuation model, was $2,649,877, of which $66,882 and $144,382, respectively, were recognized during the three and nine months ended September 30, 2014. The fair value of the 6,378 shares to a consultant was $50,004 based on the closing price of the Company’s common stock on September 16, 2014, the date the Board approved the issuance.
Awards Granted Outside the Plan
The Company issued a non-qualified stock option to its Chief Executive Officer (the “Inducement Option”) to purchase 250,000 shares of the Company’s common stock at a per share exercise price of $7.14, equal to the closing price of the Company’s common stock on January 8, 2014, the date of grant. The right to purchase the shares subject to the Inducement Option will vest in equal increments over a period of four years, beginning on December 31, 2014 and continuing thereafter on each subsequent December 31st through the end of the vesting period. The Inducement Option has a term of 10 years. The estimated fair value of the Inducement Option, calculated utilizing the Black-Scholes option valuation model, was $1,030,825, of which $64,427 and $193,280, respectively, were recognized during the three and nine months ended September 30, 2014.
During the nine months ended September 30, 2014, one option holder exercised options to purchase 10,500 shares of the Company’s common stock on a cashless basis. The option holder received 10,374 shares of common stock and $6 in cash payment for a fractional share. This option was granted prior to the Company’s adoption of its 2013 Equity Incentive Plan.
As permitted by SAB 107, due to the Company’s insufficient history of option activity, management utilizes the simplified approach to estimate the expected term of stock options, which represents the period of time that options granted are expected to be outstanding. The risk free interest rate for periods within the contractual life of the option is based on the U.S. treasury yield in effect at the time of grant. The volatility is determined based on management’s estimate or historical volatilities of comparable companies. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.
The assumptions used in the Black-Scholes model are as follows:
A summary of the Company’s stock option activity and related information is as follows:
The estimated aggregate pretax intrinsic value (the difference between the Company’s stock price on the last day of the nine months ended September 30, 2014 and the exercise prices, multiplied by the number of in-the-money options) is approximately $787,000. This amount changes based on the fair value of the Company’s stock.
As of September 30, 2014, there was $3,844,004 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, including the Contingent Grants, or, in the case of the Inducement Option, outside the Plan. That cost is expected to be recognized over a weighted average period of 3.1 years.
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