Shareholders' Equity

9 Months Ended

Sep. 30, 2016

Shareholders' Equity [Abstract]

Shareholders' Equity

Note 9. Shareholders’ Equity

Share-based compensation.  On September 30, 2016, the Company had one active plan, the Cogentix Medical 2015 Omnibus Incentive Plan, for share-based compensation grants (“the 2015 Plan”). Under the 2015 Plan, if we have a change in control (as defined in the 2015 Plan) and the Company is not the surviving entity, all outstanding grants, including those subject to vesting or other performance targets, fully vest immediately if they are not assumed or replaced with equivalent grants.  If the Company is the surviving entity, there is no accelerated vesting of equity grants solely upon a change in control.  Under the 2015 Plan, we reserved 2,500,000 shares of our common stock for share-based grants and 1,475,870 shares remain available for grant on September 30, 2016.

We recognize share-based compensation expense in our Condensed Consolidated Statement of Operations based on the fair value at the time of grant of the share-based payment over the requisite service period.  We incurred approximately $440,000 and $951,000 in share-based compensation expense for the nine months ended September 30, 2016 and 2015, respectively.

On September 30, 2016, we had approximately $371,000 of unrecognized share-based compensation expense, net of estimated forfeitures, related to stock options that we expect to recognize over a weighted-average period of approximately 2.25 years.

We grant option awards with an exercise price equal to the closing market price of our stock at the date of the grant.  Options granted under this plan generally expire seven years from date of grant and vest at varying rates ranging up to three years.

We determined the fair value of our option awards using the Black-Scholes option pricing model.  We used the following weighted-average assumptions to value the options granted during the nine months ended September 30:

	2016			2015
Expected life in years		3.90			3.84
Risk-free interest rate		0.98	%		1.11	%
Expected volatility		64.32	%		63.94	%
Expected dividend yield		0	%		0	%
Weighted-average grant date fair value	$	0.49		$	0.79

The expected life for options granted represents the period of time we expect options to be outstanding based on historical data of option holder exercise and termination behavior for similar grants.  The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate over the expected life at the time of grant.  Expected volatility is based upon historical volatility of our stock.  We estimate the forfeiture rate for stock awards to be approximately 15% for executive employees and directors and approximately 20% for non-executive employees for calendar year 2016 awards based on our historical experience.

The following table summarizes the activity related to our stock options during the nine months ended September 30, 2016:

	Number of shares			Weighted average exercise price		Weighted average remaining life in years		Aggregate intrinsic value
Outstanding at December 31, 2015		2,573,640		$	4.44		4.64	$	-
Options granted		692,400			1.05
Options exercised		-			-
Options surrendered		(1,566,135	)		3.90
Outstanding at September 30, 2016		1,699,905		$	3.54		6.79	$	578,213
Exercisable at September 30, 2016		818,333		$	6.03		3.95	$	16,062

The total fair value of stock options that vested during the nine months ended September 30, 2016 and 2015 was approximately $268,000 and $600,000, respectively.

Our 2015 Plan also permits the compensation committee of our board of directors to grant other stock-based benefits, including restricted shares. The following table summarizes the activity related to our restricted shares during the nine months ended September 30, 2016:

	Number of Shares			Weighted average grant date fair value		Weighted average remaining life in years		Aggregate intrinsic value
Balance at December 31, 2015		686,910		$	2.41		1.59	$	886,114
Shares granted		837,858			1.06
Shares vested		(323,613	)		2.19
Shares forfeited		(301,822	)		2.48
Balance at September 30, 2016		899,333		$	1.21		1.54	$	1,636,786

The aggregate intrinsic value shown above for the restricted shares represents the total pre-tax value based on the closing price of our common stock at the end of each period.

On September 30, 2016, we had $907,000 of unrecognized share-based compensation expense, net of estimated forfeitures, related to restricted shares that we expect to recognize over a weighted-average period of approximately 1.54 years.

Stock Warrants-Related Party.  On September 30, 2016, the Company has warrants outstanding that were issued to Mr. Lewis C. Pell, a member of the Company’s board of directors, to purchase an aggregate of 376,123 shares of our common stock at a weighted average exercise price of $9.31 per share.  The duration in which the warrants may be exercised commences on the earlier of (i) March 31, 2018 or (ii) three days prior to the record date established for the declaration of any dividend or distribution of any rights in respect to our common stock in cash or other property other than our common stock, and terminates on the later of (x) the maturity date of the convertible promissory notes held by Mr. Pell and described further in Note 10 or (y) the date the convertible promissory notes are paid in full or converted into shares.  In addition, the warrants may be exercised immediately prior to a change in control.

Long-Term Incentive Plan and Awards.  On October 1, 2014, the compensation committee of our board of directors and our board of directors approved and adopted a Performance Award Agreement under the Uroplasty, Inc. 2006 Amended Stock and Incentive Plan, as amended, and on October 2, 2014, grants of Performance Awards (the “Awards”) were made to members of our senior management team.

Performance goals for the Awards are based on the achievement of specified stock price targets during the period beginning on the date of grant and ending on the fourth anniversary of the date of grant or, if earlier, the closing date of a change of control (as defined in the Plan) of the Company (the “Performance Period”).  The stock price targets under the Awards are: $7.57 price per share of common stock, $10.32 price per share of common stock and $13.76 price per share of common stock.

A stock price target is considered achieved on the date (a) the average closing price of a share of our common stock equals or exceeds a stock price target for at least 45 consecutive trading days or (b) of the consummation of a change of control of the Company, provided the closing price of a share of our common stock on the last trading day immediately preceding the closing date of the change of control equals or exceeds a stock price target not previously achieved during the Performance Period.

The Awards are accounted for as liability awards under the share-based compensation accounting guidance, as the awards are based on the performance of our common stock and are expected to be settled in cash.  Expense for the awards is recognized over the derived service period of approximately 2.4 years. We recorded a liability of approximately $10,000 at September 30, 2016 and related reversal of expense was approximately $57,000 for the nine months ended ending September 30, 2016 for the Awards.