|12 Months Ended|
Dec. 31, 2015
7. Stockholders’ equity
Convertible preferred stock and conversion
Prior to the completion of the Company’s initial public offering in February 2014, the Company was authorized to issue common stock and Series A, Series B, Series C, Series D, Series E, Series F, and Series G preferred stock.
A summary of the terms of the various types of redeemable convertible preferred stock at December 31, 2013, is as follows:
A summary of the terms of non-redeemable convertible preferred stock at December 31, 2013 is as follows:
There was no outstanding convertible preferred stock as of December 31, 2015 and 2014, respectively.
Upon closing of the initial public offering on February 20, 2014, all the preferred stockholders converted their shares into 14,259,647 shares of common stock.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of other classes of stock outstanding.
Pursuant to the amended and restated certificate of incorporation filed by the Company in connection with the completion of its initial public offering, the Company’s board of directors is authorized to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing change in the Company’s control or other corporate action. As of December 31, 2015, no shares of preferred stock were issued or outstanding, and the board of directors has not authorized or designated any rights, preferences, privileges and restrictions for any class of preferred stock.
There were no dividends declared during the years ended December 31, 2015, 2014 and 2013.
Stock incentive plans
The Company has a 2012 Equity Incentive Plan (2012 Plan) under which the Company granted options to purchase shares of its common stock. As of December 31, 2015, options to purchase 603,653 shares of common stock remained outstanding under the 2012 Plan. The 2012 Plan was terminated in connection with the Company’s initial public offering, and accordingly, no new options are available for issuance under this plan. The 2012 Plan continues to govern outstanding awards granted thereunder.
The Company has a 2002 Stock Incentive Plan (2002 Plan) as amended, under which the Company granted options to purchase shares of its common stock. As of December 31, 2015, options to purchase 272,335 shares of common stock remained outstanding under the 2002 Plan. The 2002 Plan was terminated in March 2012 in connection with the adoption of the 2012 Plan, and, accordingly, no new options are available for issuance under this plan. The 2002 Plan continues to govern outstanding awards granted thereunder.
The Company’s board of directors adopted and its stockholders approved a 2014 Equity Incentive Plan (2014 Plan) effective immediately prior to the effectiveness of its initial public offering. The 2014 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to the Company’s employees and any parent and subsidiary corporation’s employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants.
As of December 31, 2015, options to purchase 1,419,382 shares of the Company’s common stock were outstanding, and 273,099 shares of common stock remained available for issuance. The shares available for issuance under the 2014 Plan will be increased by any shares returned to the 2002 Plan, 2012 Plan and the 2014 Plan as a result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to such previously granted awards under the 2002 Plan and 2012 Plan is 2,328,569 shares). The number of shares available for issuance under the 2014 Plan also is increased annually on the first day of each fiscal year equal to the least of:
For 2015, an additional 762,373 shares were added to the 2014 Plan share reserve pursuant to the provision described above.
Options typically expire between seven and ten years from the date of grant and vest over one to four year terms. Options have been granted to employees, directors and consultants of the Company at the deemed fair market value, as determined by the board of directors, of the shares underlying the options at the date of grant.
The activity for stock options under the Company’s stock plans is as follows:
The Company’s board of directors adopted and its stockholders approved a 2014 Employee Stock Purchase Plan (ESPP) effective immediately prior to the effectiveness of its initial public offering. The ESPP provides for the grant to all eligible employees an option to purchase common stock under the ESPP, within the meaning Section 423 of the Internal Revenue Code. The ESPP permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant’s base straight time gross earnings, incentive compensation, bonuses, overtime and shift premium, but exclusive of payments for equity compensation and other similar compensation. A participant may purchase a maximum of 1,500 shares during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of the Company’s common stock at the end of each six-month period. The purchase price of the shares will be 85% of the lower of the fair market value of the Company’s common stock on the first trading day of each offering period or on the exercise date. The offering periods are currently approximately six months in length beginning on the first business day on or after March 1 and September 1 of each year and ending on the first business day on or after September 1 and March 1 approximately six months later.
As of December 31, 2015, a total of 296,674 shares of common stock were available for sale pursuant to the ESPP. The number of shares available for sale under the ESPP is increased annually on the first day of each fiscal year equal to the least of:
For 2015, an additional 179,069 shares were added to the ESPP share reserve pursuant to the provision described above.
The activity for the ESPP was as follows for the offering periods March 1, 2014 through December 31, 2015:
Stock-based compensation expense recognized for the years ended December 31, 2015 and 2014 for the ESPP was $360 and $134, respectively, and is combined with the 2014 Plan compensation expense for a total compensation expense of $3,640 and $1,451 for the years ended December 31, 2015 and 2014, respectively.
The number of equity awards available for grant under the 2014 Plan as of December 31, 2015 and December 31, 2014 was 410,367 and 221,178, respectively.
Employee stock-based compensation expense recognized in 2015 and 2014 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures at a rate of 7.5% and 6.9%, respectively, based on the Company’s historical option cancellations. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
For the years ended December 31, 2015 and 2014, stock-based compensation expense recognized under ASC 718, included in cost of sales, sales and marketing expense, general and administrative expense, and research and development expense, totaled $3,640 and $1,451, respectively. The unrecognized compensation expense related to non-vested share based compensation granted under the Plans as of December 31, 2015 and 2014 was $12,095 and $4,948, respectively.
The employee stock-based compensation expense recognized under ASC 718 was determined using the Black-Scholes method.
Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term. The expected term of the options was based on the simplified method outlined in ASC 718. The volatility factors were based on five peer companies selected from Dow Jones Industry Classification Benchmark (ICB) codes 4535 and 4537. These codes include companies which are the same market categories as the Company, which is the medical equipment and supplies line of business. The peer companies were selected based on similarity of market capitalization, size and certain operating characteristics. The calculated volatility value was established by taking the historical daily closing values prior to grant date, over a period equal to the expected term, for each of the peer companies.
When the period of data available was less than the expected term, closing values for the longest period of time available were used. The calculated historical volatility of each of these companies was then averaged to determine the calculated value used by the Company.
The value of employee options was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used:
Under these assumptions, the total weighted-average fair value of stock options granted during the years ended December 31, 2015, 2014, and 2013 was $2,428, $5,329 and $1,705, respectively.
As of December 31, 2015 and December 31, 2014 there was $12,095 and $4,948, respectively, of total unrecognized compensation expense related to non-vested share-based compensation granted under the Plan.
In connection with certain of its redeemable convertible preferred stock issuances, convertible debt financings, and other financing arrangements, the Company issued warrants for shares of its common stock and various issues of its redeemable convertible preferred stock. Such warrants related to its redeemable convertible preferred stock have been recorded as liabilities as a result of non-standard anti-dilution rights and are carried at their estimated fair value using the Monte Carlo valuation model.
There are no outstanding warrants as of December 31, 2015.
A summary of outstanding warrants at December 31, 2014 is as follows:
A reconciliation of warrant activity from January 1, 2014 to December 31, 2015 is as follows:
The fair value of the preferred warrant liability was $0 at December 31, 2015 and 2014, respectively. During the years ended December 31, 2015, 2014 and 2013, the Company recorded a gain (loss) of $0, $36 and $(262), respectively, on the change in fair value of the preferred warrants.
Accumulated other comprehensive income
Accumulated balances of the components within accumulated other comprehensive income (loss) were related to unrealized losses on foreign currency hedging and available-for-sale investments, net of tax, for the years ended December 31, 2015 and 2014 were $(37) and $0, respectively.
The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.
Reference 1: http://www.xbrl.org/2003/role/presentationRef