Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 4 – Stockholders’ Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62,500,000 shares of common stock and 2,000,000 shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

In March 2014, the Company completed a registered direct offering of common stock whereby 812,500 shares were issued at $8.00 per share. Gross proceeds from the offering totaled $6.5 million and net cash proceeds approximated $5.8 million. Expenses of the offering approximated $0.8 million. Cash expenses included placement agent fees of $488,000, placement agent legal and other fees of $75,000, issuer legal fees of $113,000, and other costs of $44,000. Non-cash expenses consisted of a warrant to purchase 20,313 shares of the Company’s common stock at $10.00 per share exercisable until March 2019 valued at $92,000.

Equity Incentive Plan

The Company has an Equity Incentive Plan (the Plan) which provides for the granting of options to purchase shares of common stock, stock awards to purchase shares at no less than 85% of the value of the shares, and stock bonuses to officers, employees, board members, consultants, and advisors. The Compensation Committee of the Board of Directors is authorized to administer the Plan and establish the grant terms, including the grant price, vesting period and exercise date. As of September 30, 2014, the number of shares reserved for issuance under the Plan totaled 1,075,046 shares. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 10% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. 

In February and July 2014, the Company granted 122,880 and 19,000 stock options, respectively, under the Plan to certain employees. The stock options have exercise prices of $9.90 and $8.22 per share, the grant date fair value, a contractual life of 10 years, and vest over four years. The fair value of stock options granted estimated on the date of grant using the Black-Scholes option valuation model was $721,000 and $78,000, respectively. The recognized compensation expense associated with these grants for the three and nine months ended September 30, 2014 was $50,000 and $140,000, respectively. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	6.25 years
Weighted average volatility	74	%
Forfeiture rate	13	%
Weighted average risk-free interest rate	1.93	%
Expected dividend rate	-

In February 2014, the Company granted 14,625 shares of common stock under the Plan to its three independent directors in accordance with board agreements for service in 2014 and subject to completion of service each quarter. The fair value of the stock at the time of grant was $10.26 per share for a total value of $150,000 which the Company will recognize in general and administrative expense on a pro-rated quarterly basis in 2014, including $37,000 and $112,000 for the three and nine months ended September 30, 2014.

In the three and nine months ended September 30, 2014, employees acquired 25,004 and 28,339 shares of common stock through the exercise of stock options with strike prices of $2.20 to $4.88 per share. For the three and nine months ended September 30, 2014, the Company received proceeds of $43,000 and $59,000, respectively.

Outstanding stock option grants at September 30, 2014 and December 31, 2013 totaled 676,843 and 565,765 with 391,910 and 317,354 being vested and exercisable at September 30, 2014 and December 31, 2013, respectively. Stock grants made to date through September 30, 2014 and December 31, 2013 totaled 190,424 shares and 175,799 shares, respectively. Of these amounts, 32,000 and 44,000 at September 30, 2014 and December 31, 2013, respectively, are subject to declining repurchase rights by the Company at $0.0001 per share through September 30, 2016. The recognized compensation expense associated with these grants for the three and nine months ended September 30, 2014 and 2013 totaled $86,000, $247,000, $35,000, and $110,000, respectively. At September 30, 2014, the number of shares reserved under the Plan but unissued totaled 207,779. At September 30, 2014, there was $914,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 3.0 years.

Consultant Stock Plan

On May 2, 2013, the stockholders approved the 2013 Consultant Stock Plan (the Consultant Plan) which provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on September 30, 2014 and December 31, 2013 totaled 83,662, and 75,287 shares, respectively. The Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 1% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine.  In February 2014, the Company granted 7,000 shares of common stock under the Consultant Stock Plan to a consultant for service in 2014 and subject to completion of service each quarter. The fair value of the stock at the time of grant was $10.26 per share for a total value of $72,000 which the Company will recognize in general and administrative expense on a pro-rated quarterly basis in 2014. The Consultant Plan expense for the three and nine months ended September 30, 2014 and 2013 was $18,000, $54,000, $34,000 and $68,000, respectively.

Warrants

In conjunction with the March 2014 registered direct offering of common stock, the Company granted a warrant to the placement agent to purchase 20,313 common stock shares at $10.00 per share exercisable until March 2019. The fair value of these warrants was estimated to be $92,000 on the date of the grant using the Black-Scholes option-pricing model. Expected volatility was determined based upon the historical prices of the Company’s common stock. The risk-free rate for periods within the contractual life of the warrants is based on the U.S. Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. The following weighted-average assumptions were utilized for the calculations:

Expected life (in years)	5
Weighted average volatility	74	%
Weighted average risk-free interest rate	1.49	%
Expected dividend rate	-

The Company has the following warrants outstanding at September 30, 2014:

		Total Outstanding Warrants
				Weighted Average		Life
Exercise Price		Warrants		Exercise Price		(in years)
$	1.80		80,000	$	1.80		6.39
$	2.20		118,959	$	2.20		1.61
$	5.00		345,000	$	5.00		2.57
$	10.00		20,313	$	10.00		4.43
			564,272	$	4.14