Quarterly report pursuant to Section 13 or 15(d)

Note 9 - Summary of Stock Options

v3.10.0.1
Note 9 - Summary of Stock Options
9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
9.
Summary of Stock Options
 
Stock Option Plans
 
The Company has issued equity awards in the form of stock options and restricted stock awards (“RSAs”) from
two
employee benefit plans. The plans include the Viveve Amended and Restated
2006
Stock Plan (the
“2006
Plan”) and the Company’s Amended and Restated
2013
Stock Option and Incentive Plan (the
“2013
Plan”).
 
As of
September 30, 2018,
there are outstanding stock option awards issued from the
2006
Plan covering a total of
38,378
shares of the Company’s common stock and
no
shares are available for future awards. The weighted average exercise price of the outstanding stock options is
$10.49
per share and the weighted average remaining contractual term is
4.1
years.
 
On
December 6, 2017,
the board of directors approved the
2018
evergreen provision increasing the total stock reserved for issuance under the
2013
Plan by
914,016
shares from 
4,000,000
shares to a total of
4,914,016
shares, which was effective
January 1, 2018.
 
As of
September 30, 2018,
there are outstanding stock option awards issued from the
2013
Plan covering a total of
4,260,187
shares of the Company’s common stock and there remain reserved for future awards
378,615
shares of the Company’s common stock. The weighted average exercise price of the outstanding stock options is
$4.59
per share, and the remaining contractual term is
8.5
years.
      
Activity under the
2006
Plan and the
2013
Plan is as follows:
 
   
Nine Months Ended September 30, 2018
 
   
 
 
 
 
 
 
 
 
Weighted
   
 
 
 
   
 
 
 
 
Weighted
   
Average
   
 
 
 
   
Number
   
Average
   
Remaining
   
Aggregate
 
   
of
   
Exercise
   
Contractual
   
Intrinsic
 
   
Shares
   
Price
   
Term (years)
   
Value
 
                                 
Options outstanding, beginning of period
   
2,694,224
    $
5.80
     
8.6
    $
249,154
 
Options granted
   
2,271,059
    $
3.54
     
 
     
 
 
Options exercised
   
-
    $
-
     
 
     
 
 
Options canceled
   
(666,718
)   $
5.55
     
 
     
 
 
Options outstanding, end of period
   
4,298,565
    $
4.64
     
8.5
    $
432,450
 
                                 
Vested and exercisable and expected to vest, end of period
   
4,047,441
    $
4.68
     
8.4
    $
395,182
 
                                 
Vested and exercisable, end of period
   
1,406,846
    $
5.56
     
7.1
    $
22,615
 
 
 
 
The aggregate intrinsic value reflects the difference between the exercise price of the underlying stock options and the Company’s closing share price as of
September 30, 2018.
 
The options outstanding and exercisable as of
September 30, 2018
are as follows: 
 
 
 
 
 
 
Options Outstanding
   
Options Exercisable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted
   
 
 
 
 
 
 
 
 
 
 
 
 
Number
   
Weighted
   
Average
   
Number
   
Weighted
 
 
 
 
 
 
Outstanding
   
Average
   
Remaining
   
Exercisable
   
Average
 
Range of
   
as of
   
Exercise
   
Contractual
   
as of
   
Exercise
 
Exercise Price
   
Sept 30, 2018
   
Price
   
Term (Years)
   
Sept 30, 2018
   
Price
 
                                               
$1.75
-
$1.97
     
535,000
    $
1.95
     
9.6
     
31,250
    $
1.97
 
$2.02
-
$2.83
     
167,500
    $
2.45
     
9.6
     
10,678
    $
2.64
 
$3.11
-
$3.82
     
481,876
    $
3.56
     
9.3
     
59,910
    $
3.76
 
$4.30
-
$4.97
     
1,435,464
    $
4.53
     
8.7
     
406,550
    $
4.63
 
$5.01
-
$5.67
     
771,655
    $
5.35
     
8.1
     
326,006
    $
5.35
 
$6.00
-
$6.61
     
551,058
    $
6.04
     
7.0
     
371,812
    $
6.02
 
$7.00
-
$7.92
     
317,634
    $
7.66
     
7.5
     
162,262
    $
7.67
 
 
$9.92
 
     
38,135
    $
9.92
     
4.1
     
38,135
    $
9.92
 
$59.60
-
$149.04
     
243
    $
100.46
     
2.2
     
243
    $
100.46
 
 
 
 
     
4,298,565
    $
4.64
     
8.5
     
1,406,846
    $
5.56
 
 
 
Stock Option Modifications
 
On
May 30, 2018,
under approval by the Company’s Board of Directors, the Company entered in to a Separation and Release Agreement with the former Chief Executive Officer. The provisions of the agreement specify that the stock options previously granted to her will continue to vest through the earlier of the date she ends her consulting services to the Company or
December 31, 2018.
As of
May 30, 2018,
these stock options are being accounted for as a non-employee option through the consulting term and are being marked-to-market. Additionally, the former Chief Executive Officer will receive
six
months of accelerated vesting of the stock options and the post-termination exercise period was extended from
three
months to
one
year after the effective date of the agreement. The Company recognized stock-based compensation expense of
$97,000
for the incremental value of the accelerated vesting and the change in the exercise period upon the signing of the agreement.
 
Restricted Stock Awards
 
In
July 2018,
the Company granted RSAs for
18,278
of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$2.63
per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the date of grant and
18,278
shares of common stock were issued.
 
 In
June 2018,
the Company granted an RSA for
50,000
shares to a consultant with a weighted average grant date fair value of
$3.58
per share, based on the market price of the Company’s common stock on the award date. The RSA vests over
two
years beginning as of the award date. As of
September 30, 2018,
zero
shares were vested and issued.
 
In
April 2018,
the Company granted RSAs for
14,672
shares of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$3.44
per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the date of grant and
14,672
shares of common stock were issued.
 
In
January 2018,
the Company granted RSAs for
9,637
shares of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$5.19
per share, based on the market price of the Company’s common stock on the award date. The RSAs were fully vested on the date of grant and
9,637
shares of common stock were issued.
 
In
January 2018,
the Company granted an RSA for
25,000
shares to a consultant with a weighted average grant date fair value of
$5.19
per share, based on the market price of the Company’s common stock on the award date. The RSA vests over
one
year beginning as of the award date. As of
September 30, 2018,
25,000
shares were vested and issued.
 
As of
September 30, 2018,
there are
60,000
shares of unvested restricted stock outstanding that have been granted pursuant to RSAs.
 
2017
Employee Stock Purchase Plan
 
The
second
offering period under the Company’s
2017
Employee Stock Purchase Plan (the
“2017
ESPP”) began on
January 1, 2018
and ended on
March 31, 2018,
and
20,744
shares were issued on
March 29, 2018
at a purchase price of
$3.11.
The
third
offering period under the Company’s
2017
ESPP began on
April 1, 2018
and ended on
June 30, 2018,
and
25,618
shares were issued on
June 29, 2018
at a purchase price of
$2.31.
The
fourth
offering period under the Company’s
2017
ESPP began on
July 1, 2018
and ended on
September 30, 2018,
and
28,698
shares were issued on
September 28, 2018
at a purchase price of
$2.24.
 
As of
September 30, 2018,
the remaining shares available for issuance under the
2017
ESPP were
307,046
shares.
 
The Company estimates the fair value of purchase rights under the ESPP using a Black-Scholes valuation model. The fair value of each purchase right was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions:
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2018
   
September 30, 2018
 
             
Expected term (in years)
 
0.25
   
0.25
 
Average volatility
 
67%
   
67%
 
Risk-free interest rate
 
1.93%
   
1.71%
 
Dividend yield
 
0%
   
0%
 
 
The weighted average grant date fair value of the purchase rights issued under the
2017
ESPP during the
three
and
nine
months ended
September 30, 2018
was
$0.75
and
$1.00,
respectively. 
 
Stock-Based Compensation
 
During the
three
months ended
September 30, 2018
and
2017,
the Company granted stock options to employees to purchase
237,500
and
305,000
shares of common stock, respectively, with a weighted average grant date fair value of
$3.01
and
$3.91
per share, respectively. During the
nine
months ended
September 30, 2018
and
2017,
the Company granted stock options to employees to purchase
2,058,671
and
720,110
shares of common stock, respectively, with a weighted average grant date fair value of
$3.65
and
$2.83
per share, respectively. There were
no
stock options exercised during the
three
and
nine
months ended
September 30, 2018.
A total of
7,730
shares pursuant to stock options issued to employees were exercised during the
nine
months ended
September 30, 2017.
The aggregate intrinsic value of options exercised during the
nine
months ended
September 30, 2017
was
$31,000.
 
The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options granted was estimated using the following weighted average assumptions:   
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Expected term (in years)
 
5
   
5
   
5
   
5
 
Average volatility
 
70%
   
64%
   
73%
   
55%
 
Risk-free interest rate
 
2.86%
   
1.73%
   
2.67%
   
1.83%
 
Dividend yield
 
0%
   
0%
   
0%
   
0%
 
 
 
During the
three
and
nine
months ended
September 30, 2018,
the Company granted stock options to nonemployees to purchase
10,000
and
212,388
shares of common stock, respectively, with a weighted average grant date fair value of
$2.83
and
$2.42,
respectively. During the
three
and
nine
months ended
September 30, 2017,
the Company granted stock options to nonemployees to purchase
14,000
and
19,875
shares of common stock, respectively, with a weighted average grant date fair value of
$3.66
and
$4.09,
respectively. There were
no
stock options exercised by nonemployees during the
three
and
nine
months ended
September 30, 2018
and
2017.
 
 
The fair value of nonemployee stock options granted was estimated using the following weighted average assumptions: 
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Expected term (in years)
 
10
   
10
   
10
   
10
 
Average volatility
 
66%
   
78%
   
66%
   
78%
 
Risk-free interest rate
 
3.04%
   
2.32%
   
3.04%
   
2.31%
 
Dividend yield
 
0%
   
0%
   
0%
   
0%
 
 
Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of the Company’s stock price history over a period commensurate with the expected term of the options, trading volume of comparable companies’ stock, look-back volatilities and the Company specific events that affected volatility in a prior period. The expected term of employee stock options represents the weighted average period the stock options are expected to remain outstanding and is based on the history of exercises and cancellations on all past option grants made by the Company, the contractual term, the vesting period and the expected remaining term of the outstanding options. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options.
No
dividend yield is included as the Company has
not
issued any dividends and does
not
anticipate issuing any dividends in the future.  
  
The following table shows stock-based compensation expense included in the condensed consolidated statements of operations for the
three
and
nine
months ended
September 30, 2018
and
2017
(in thousands):
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                                 
Cost of revenue
  $
19
    $
5
    $
47
    $
12
 
Research and development
   
79
     
62
     
266
     
170
 
Selling, general and administrative
   
667
     
420
     
1,981
     
1,132
 
Total
  $
765
    $
487
    $
2,294
    $
1,314
 
 
 
As of
September 30, 2018,
the total unrecognized compensation cost in connection with unvested stock options was approximately
$5,604,000.
These costs are expected to be recognized over a period of approximately
2.87
years.