Note 10 - Stock Option Plan

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

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 from three employee benefit plans. The plans include the PLC 2005 Stock Incentive Plan (the “2005 Plan”), the Viveve Amended and Restated 2006 Stock Plan (the “2006 Plan”) and the PLC 2013 Stock Option and Incentive Plan (the “2013 Plan”).

The 2005 Plan was adopted by PLC's Board of Directors and approved by its stockholders. 22,095 shares of common stock remain reserved for issuance under the 2005 Plan. The Company does not intend to grant further awards from the 2005 Plan, however, it will continue to administer the 2005 Plan until all outstanding awards are exercised, expire, terminate or are forfeited. There are currently outstanding stock option awards issued from the 2005 Plan covering a total of 22,095 shares of the Company’s common stock. The weighted average exercise price of the outstanding stock options is $12.83 per share and the weighted average remaining contractual term is 8.80 years.

The 2006 Plan was adopted by the Board of Directors of Viveve and was terminated in conjunction with the Merger. Outstanding stock option awards have been assumed by the Company and will continue to be administered in accordance with the terms of the 2006 Plan until such awards are exercised, expire, terminate or are forfeited. There are currently outstanding stock option awards issued from the 2006 Plan covering a total of 324,820 shares of the Company’s common stock and no shares available for future awards. The weighted average exercise price of the outstanding stock options is $1.55 per share and the weighted average remaining contractual term is 8.06 years. Additionally, 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. Furthermore, at the Merger, 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). The number of shares of the Company’s common stock into which the 2006 Plan options were converted was determined by multiplying the number of shares covered by each 2006 Plan option by the exchange ratio of 0.0080497. The exercise price of each 2006 Plan option was determined by dividing the exercise price of each 2006 Plan option immediately prior to the Merger by the exchange ratio of 0.0080497 (rounded up to the nearest cent).

The 2013 Plan was also adopted by PLC'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 to eligible participants awards of equity 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, non-employee 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. There are currently outstanding stock option awards issued from the 2013 Plan covering a total of 1,947,619 shares of the Company’s common stock and there remain reserved for future awards 839,148 shares of the Company’s common stock. The weighted average exercise price of the outstanding stock options is $0.80 per share. Concurrent with the Merger, the stockholders approved an amendment to the 2013 Plan to increase the number of shares reserved under the 2013 Plan from 113,826 to 3,111,587.

Activity under the 2005 Plan, the 2006 Plan and the 2013 Plan is as follows:

	Outstanding Options
						Weighted-
				Weighted-		Average
	Number			Average		Remaining
	of			Exercise		Contractual
	Shares			Price		Term (years)
Options outstanding as of December 31, 2013		363,413		$	2.94		8.80
Options granted		1,901,476		$	0.60
Options assumed from PLC		68,238		$	10.24
Options canceled		(38,593	)	$	1.75
Options outstanding as of September 30, 2014		2,294,534		$	1.02		9.67

As of September 30, 2014, the Company had 839,148 shares available for grant.

The options outstanding and exercisable as of September 30, 2014 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			September 30, 2014		Price		Term (Years)		September 30, 2014		Price
	$0.12			320	$	0.12		2.21		320	$	0.12
	$0.60			1,901,476	$	0.60		10.00		20,000	$	0.60
	$1.24			314,036	$	1.24		8.15		314,036	$	1.24
$7.00	-	$9.00		59,372	$	8.63		8.28		59,372	$	8.63
$12.00	-	$18.63		19,081	$	15.29		6.79		19,081	$	15.29
	$37.00			250	$	37.00		3.72		250	$	37.00
				2,294,535	$	1.02		9.67		413,059	$	2.94

Stock-Based Compensation

During the three and nine months ended September 30, 2014, the Company granted stock options to employees to purchase 1,901,476 shares of common stock with a weighted-average grant date fair value of $0.32 per share. Stock-based compensation expense recognized during the three months ended September 30, 2014 and 2013 was $113,345 and $16,284 respectively. Stock-based compensation expense recognized during the nine months ended September 30, 2014 and 2013 was $143,643 and $66,001, respectively. As of September 30, 2014, the total unrecognized compensation cost in connection with unvested stock options was approximately $567,000. These costs are expected to be recognized over a period of approximately 3.26 years. The aggregate intrinsic value of options outstanding as of September 30, 2014 was approximately $1.7 million. There were no options exercised during the nine months ended September 30, 2014 and 2013.

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 assumptions:

	Nine Months Ended
	September 30,
	2014		2013
Expected term (in years)		5		5
Average volatility		61%		67%
Risk-free interest rate		1.80%		0.87%
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 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, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Research and development	$	101	$	976	$	667	$	(7,016	)
General and administrative		113,245		15,308		142,976		73,017
Total	$	113,346	$	16,284	$	143,643	$	66,001