Annual report pursuant to Section 13 and 15(d)

Note 10 - Summary of Stock Options

v3.19.1
Note 10 - Summary of Stock Options
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
10.
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”).
 
The
2006
Plan was adopted by the board of directors of Viveve, Inc. and was terminated in conjunction with the merger that took place on
September 23, 2014
between PLC Systems Inc., Viveve, Inc. and PLC Systems Acquisition Corp. (the “Merger”). Prior to the Merger, the board of directors voted to accelerate the vesting of all unvested options that were outstanding as of the date of the Merger such that all options would be immediately vested and exercisable by the holders. In conjunction with the Merger, the Company agreed to assume and administer the
2006
Plan and all outstanding options to purchase shares of Viveve, Inc. common stock issued from the
2006
Plan were converted into options to purchase shares of the Company’s common stock (rounded down to the nearest whole share). As of
December 31, 2018,
there are outstanding stock option awards issued from the
2006
Plan covering a total of
38,145
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
$9.96
per share and the weighted average remaining contractual term is
1.3
years.
 
The
2013
Plan was also adopted by the Company’s board of directors and approved by its stockholders. The
2013
Plan is administered by the compensation committee of the Company’s board of directors (the “Administrator”). Under the
2013
Plan, the Company
may
grant equity awards to eligible participants which
may
take the form of stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted, deferred or unrestricted stock awards, performance-based awards or dividend equivalent rights. Awards
may
be granted to officers, employees, nonemployee directors (as defined in the
2013
Plan) and other key persons (including consultants and prospective employees). The term of any stock option award
may
not
exceed
10
years and
may
be subject to vesting conditions, as determined by the Administrator. Options granted generally vest over
four
years. Incentive stock options
may
be granted only to employees of the Company or any subsidiary that is a “subsidiary corporation” within the meaning of Section
424
(f) of the Internal Revenue Code. The exercise price of any stock option award cannot be less than the fair market value of the Company’s common stock, provided, however, that an incentive stock option granted to an employee who owns more than
10%
of the Company’s outstanding voting power must have an exercise price of
no
less than
110%
of the fair market value of the Company’s common stock and a term that does
not
exceed
five
years.
 
On
August 22, 2016,
the Company’s stockholders approved an amendment to the
2013
Plan to add an “evergreen” provision which will automatically increase annually, on the
first
day of each
January,
the maximum number of shares of common stock reserved and available under the
2013
plan (the “Stock Issuable”) by an amount equal to the lesser of (i) the number of shares that will increase the Stock Issuable by
4%
of the total number of shares of common stock outstanding (on a fully diluted basis) or (ii) an amount determined by the board of directors. On
December 23, 2016,
the board of directors approved the
2017
evergreen increasing the total stock reserved for issuance under the
2013
Plan by
523,209
shares from 
2,000,000
shares to a total of
2,523,209
shares, which was effective
January 1, 2017.
On
August 15, 2017,
the Company’s stockholders approved an amendment to the
2013
Plan increasing the number of shares of common stock authorized for awards under the
2013
Plan from 
2,523,209
 shares to a total of
4,000,000
shares. On
December 6, 2017,
the board of directors approved the
2018
evergreen increasing the total stock reserved for issuance under the
2013
Plan from 
4,000,000
shares to a total of
4,914,016
shares, which was effective
January 1, 2018.
 
As of
December 31, 2018,
there are outstanding stock option awards issued from the
2013
Plan covering a total of
3,976,330
shares of the Company’s common stock and there remain reserved for future awards
603,712
shares of the Company’s common stock. The weighted average exercise price of the outstanding stock options is
$4.50
per share, and the remaining contractual term is
7.5
years.
      
Activity under the
2006
Plan and the
2013
Plan is as follows:
 
   
Year Ended December 31, 2018
 
   
 
 
 
 
 
 
 
 
Weighted
   
 
 
 
   
 
 
 
 
Weighted
   
Average
   
 
 
 
   
Number
   
Average
   
Remaining
   
Aggregate
 
   
of
   
Exercise
   
Contractual
   
Intrinsic
 
   
Shares
   
Price
   
Term (years)
   
Value
 
Options outstanding, December 31, 2016
   
1,909,764
    $
6.19
     
9.1
    $
211,396
 
Options granted
   
1,000,985
    $
5.68
     
 
     
 
 
Options exercised
   
(7,730
)   $
4.02
     
 
     
 
 
Options canceled
   
(208,795
)   $
8.88
     
 
     
 
 
Options outstanding, December 31, 2017
   
2,694,224
    $
5.80
     
8.6
    $
249,154
 
Options granted
   
2,358,559
    $
3.52
     
 
     
 
 
Options exercised
   
-
    $
-
     
 
     
 
 
Options canceled
   
(1,038,308
)   $
5.43
     
 
     
 
 
Options outstanding, December 31, 2018
   
4,014,475
    $
4.56
     
7.4
    $
-
 
                                 
Vested and exercisable and expected to vest, end of period
   
3,825,887
    $
4.98
     
7.3
    $
-
 
                                 
Vested and exercisable, end of period
   
1,637,474
    $
5.44
     
5.0
    $
-
 
 
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
December 31, 2018.
  
The options outstanding and exercisable as of
December 31, 
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 Prices
   
Dec 31, 2018
   
Price
   
Term (Years)
   
Dec 31, 2018
   
Price
 
                                               
                                               
$1.75
-
$1.97
     
535,000
    $
1.95
     
9.4
     
50,000
    $
1.97
 
$2.02
-
$2.83
     
180,000
    $
2.40
     
9.4
     
11,459
    $
1.97
 
$3.03
-
$3.82
     
546,876
    $
3.53
     
9.1
     
64,090
    $
2.64
 
$4.30
-
$4.97
     
1,247,318
    $
4.54
     
7.3
     
503,934
    $
3.76
 
$5.01
-
$5.67
     
693,067
    $
5.36
     
6.8
     
397,466
    $
4.62
 
$6.00
-
$6.61
     
490,470
    $
6.04
     
4.1
     
412,662
    $
5.34
 
$7.00
-
$7.92
     
283,599
    $
7.65
     
7.4
     
159,718
    $
6.02
 
$9.92
     
38,135
    $
9.92
     
1.3
     
38,135
    $
7.66
 
$59.60
-
$149.04
     
10
    $
149.04
     
2.8
     
10
    $
9.92
 
 
 
 
     
4,014,475
    $
4.56
     
7.4
     
1,637,474
    $
5.44
 
 
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
 
As of
December 31, 2018,
there are
57,500
shares of unvested restricted stock outstanding that have been granted pursuant to RSAs.
 
In
December 2018,
the Company granted RSAs for
40,775
of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$1.05
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
40,775
shares of common stock were issued.
 
In
October 2018,
the Company granted RSAs for
17,985
of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$2.48
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
17,985
shares of common stock were issued.
 
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
December 31, 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
December 31, 2018,
25,000
shares were vested and issued.
 
In
December 2017,
the Company granted an RSA for
10,000
shares to an employee with a weighted average grant date fair value of
$4.94
per share, based on the market price of the Company’s common stock on the award date. The RSA vests over
four
years at a rate of
1/4
th
the
first
year beginning as of the award date and monthly thereafter. As of
December 31, 2018,
2,500
shares were vested and issued.
 
In
October 2017,
the Company granted RSAs for
7,884
shares of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$5.55
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
7,884
shares of common stock were issued.
 
In
May 2017,
the Company granted RSAs for
4,797
shares of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$7.07
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
4,797
shares of common stock were issued. In
September 2017,
the Company granted RSAs for
6,947
shares of common stock under the
2013
Plan to board members as director compensation with a weighted average grant date fair value of
$5.58
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
6,947
shares of common stock were issued.
   
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.
The
fifth
offering period under the Company’s
2017
ESPP began on
October 1, 2018
and ended on
December 31, 2018,
and
50,727
shares were issued on
December 31, 2018
at a purchase price of
$0.89.
 
As of
December 31, 2018,
the remaining shares available for issuance under the
2017
ESPP were
256,319
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:
 
   
Year Ended
 
   
December 31,
 
   
2018
   
2017
 
                 
Expected term (in years)
   
0.25
     
0.25
 
Average volatility
   
72%
     
61%
 
Risk-free interest rate
   
1.92%
     
1.06%
 
Dividend yield
   
0%
     
0%
 
 
The weighted average grant date fair value of the purchase rights issued under the
2017
ESPP during the year ended
December 31, 2018
and
2017
was
$0.89
and
$1.51
per share, respectively.
 
Stock-Based Compensation
 
During the years ended
December 31, 
2018
and
2017,
the Company granted stock options to employees to purchase
2,146,171
and
981,110
shares of common stock with a weighted average grant date fair value of
$2.24
and
$2.88
per share, respectively. There were
no
stock options exercised by employees during the year ended
December 31, 2018.
The aggregate intrinsic value of options exercised during the year ended
December 31, 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: 
 
   
Year Ended
 
   
December 31,
 
   
2018
   
2017
 
                 
Expected term (in years)
   
5
     
5
 
Average volatility
   
73%
     
59%
 
Risk-free interest rate
   
2.65%
     
1.89%
 
Dividend yield
   
0%
     
0%
 
 
During the years ended
December 31, 
2018
and
2017,
the Company granted stock options to nonemployees to purchase
212,388
and
19,875
shares of common stock, with a weighted average grant date fair value of
$1.62
and
$4.09
per share. There were
no
stock options exercised by nonemployees during the years ended
December 31, 2018
and
2017.
 
 
The fair value of nonemployee stock options granted was estimated using the following weighted average assumptions:
 
   
Year Ended
 
   
December 31,
 
   
2018
   
2017
 
                 
Expected term (in years)
   
9
     
10
 
Average volatility
   
69%
     
72%
 
Risk-free interest rate
   
2.69%
     
2.38%
 
Dividend yield
   
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 consolidated statements of operations for the years ended
December 31, 2018
and
2017
(in thousands):
 
   
Year Ended
 
   
December 31,
 
   
2018
   
2017
 
                 
Cost of revenue
  $
69
    $
19
 
Research and development
   
328
     
252
 
Selling, general and administrative
   
2,638
     
1,601
 
Total
  $
3,035
    $
1,872
 
 
As of
December 31, 
2018,
the total unrecognized compensation cost in connection with unvested stock options was approximately
$4,328,328.
These costs are expected to be recognized over a period of approximately
2.72
years.