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Stock Option Plan
9 Months Ended
Sep. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Option Plan
6. STOCK OPTION PLAN

A summary of stock option activity for employee, director and nonemployee awards under all stock option plans during the nine months ended September 30, 2014 is presented below:

 

     Number of
Shares
    Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Life (Years)
     Aggregate
Intrinsic
Value
 

Outstanding — January 1, 2014

     1,062,694      $ 3.98         7.2       $ 7,028,000   

Granted

     809,970      $ 6.61         

Exercised

     (41,281   $ 3.36         

Forfeited

     (33,119   $ 4.85         
  

 

 

         

Outstanding — September 30, 2014

     1,798,264      $ 5.16         7.9       $ 488,000   
  

 

 

         

Options expected to vest — September 30, 2014

     1,011,585      $ 5.71         9.1       $ 130,000   
  

 

 

         

Options exercisable — September 30, 2014

     736,024      $ 4.37         6.1       $ 350,000   
  

 

 

         

The weighted-average per share grant date fair value of options granted during the three and nine months ended September 30, 2014 was $2.41 and $3.71, respectively. The Company did not grant any stock options during the three months ended September 30, 2013. The weighted-average per share grant date fair value of options granted during the nine months ended September 30, 2013 was $2.61.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model based on assumptions noted in the table below, except for the performance-based option grants. The fair value of the performance-based options were determined by utilizing a Monte Carlo model to simulate a wide range of possible future stock prices for the Company’s common stock.

The Company has recorded stock-based compensation expense related to the issuance of stock option awards to employees of $272,000 and $32,000 for the three months ended September 30, 2014 and 2013, respectively, and $591,000 and $453,000 for the nine months ended September 30, 2014 and 2013, respectively. The assumptions used in the Black-Scholes option-pricing model for stock options granted to employees, and to directors in respect of board services during the three and nine months ended September 30, 2014 and the nine months ended September 30, 2013 are as follows:

 

     Three Months Ended September 30,    Nine Months Ended September 30,
     2014    2014    2013

Expected life

   6 years    6 years    6 years

Risk-free interest rate

   1.86%-2.00%    1.83%-2.00%    1.08%

Expected volatility

   57%-60%    57%-60%    79%

Expected dividend rate

   —  %    —  %    —  %

The Company recorded stock-based compensation expense related to nonemployee awards of $13,000 and $14,000 for the three months ended September 30, 2014 and 2013, respectively, and $37,000 and $36,000 for the nine months ended September 30, 2014 and 2013, respectively. The compensation expense related to the nonemployee awards is included in the total stock-based compensation each year and is subject to re-measurement until the options vest. The Black-Scholes assumptions used to estimate fair value for the three and nine months ended September 30, 2014 and 2013 were as follows:

 

     Three Months Ended September 30,    Nine Months Ended September 30,
     2014    2013    2014    2013

Expected life

   8 years    7 years    8 years    7 years

Risk-free interest rate

   2.08%-2.53%    1.77%-2.15%    2.05%-2.53%    1.11% to 2.15%

Expected volatility

   56%-62%    56%-58%    56%-62%    56-79%

Expected dividend rate

   —  %    —  %    —  %    —  %

The Company did not grant any nonemployee stock option grants for the nine months ended September 30, 2014 and 2013, except for a performance award grant in the 2013 period to the Company’s board chairman for non-board related services. During the quarter ended September 30, 2014, the board of directors changed the vesting conditions of this award from performance-based vesting to time-based vesting and reduced the total number of shares subject to the stock option. As a result, the shares subject to this stock option now vest over three years, with the first third vesting on March 26, 2014. The change in vesting condition was accounted for as a modification of this stock option, which had an immaterial impact on the Company’s financial statements.