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Equity
 12 Months Ended
Dec. 31, 2014
Equity [Abstract]  
Equity

NOTE 14—EQUITY

 

(a) General

 

At the annual meeting of stockholders on June 10, 2010, the Company’s stockholders approved an amendment to its Certificate of Incorporation to increase the number of authorized shares of capital stock from 20,000,000 shares to 30,000,000 shares, all of which shall be common stock. The increase in authorized shares was done pursuant to a Certificate of Amendment to the Certificate of Incorporation filed with the Secretary of State of the State of Delaware on, and effective as of, June 15, 2010.

 

At December 31, 2014 the Company had issued and outstanding 26,475,591 shares of its common stock, par value $0.01 per share. Holders of outstanding common stock are entitled to receive dividends when, as and if declared by the Board and to share ratably in the assets of the Company legally available for distribution in the event of a liquidation, dissolution or winding up of the Company. Holders of common stock do not have subscription, redemption, conversion or other preemptive rights. Holders of the common stock are entitled to elect all of the Directors on the Company’s Board. Holders of the common stock do not have cumulative voting rights, meaning that the holders of more than 50% of the common stock can elect all of the Company’s Directors. Except as otherwise required by Delaware General Corporation Law, all stockholder action is taken by vote of a majority of shares of common stock present at a meeting of stockholders at which a quorum (a majority of the issued and outstanding shares of common stock) is present in person or by proxy or by written consent pursuant to Delaware law (other than the election of Directors, who are elected by a plurality vote).

 

The Company is not authorized to issue preferred stock. Accordingly, no preferred stock is issued or outstanding.

 

(b) Capital Raise

 

On November 5, 2014, the Company closed on a private placement of unregistered shares of common stock and warrants to purchase common stock. The Company received gross proceeds of $4,500 ($4,007 net of transaction costs) and issued 4,285,714 unregistered shares of common stock at a price per share of $1.05 and warrants to purchase up to 2,142,857 shares of common stock at an exercise price of $1.30 per share. The warrants are non-exercisable for six months from the date of the closing and have a term of five years, six months. At the closing, pursuant to the terms of the Placement Agent Agreement, in addition to its cash fee (included in the transaction costs), the placement agent received warrants to purchase 214,285 shares of the Company’s common stock at an exercise price of $1.26 per share. The placement agent’s warrants are non-exercisable for six months from the date of the closing and have a term of five years.

 

Following the November 2014 private placement (noted above), the Company no longer had sufficient authorized shares to satisfy outstanding warrants and option agreements if all such agreements were to be exercised. Accordingly, the Company recognized this as a derivative liability and recorded such liability ($50) using the Black-Scholes valuation method to estimate the fair value of the derivative liability. The Company used a weighted average risk free interest rate of 1.1%, an expected life of 3.3 years, an annual volatility of 70% and no dividends to determine the value of the derivative liability.

 

On October, 17, 2013, the Company closed on a public offering of 3,508,771 shares of its common stock at $2.85 per share for gross proceeds to the Company of $10,000. The Company received net proceeds of $9,134 after deducting discounts and commissions to the underwriters and offering expenses. In connection with the Underwriting Agreement, the Company also issued a warrant to the underwriters to acquire 228,070 shares of common stock at $3.14 per share which shall be exercisable for five years (see Note 14(j)).

 

On October, 23, 2013, the Company closed on a sale of 526,316 shares of its common stock following the full exercise of the over-allotment option granted to the underwriters at $2.85 per share for gross proceeds to the Company of $1,500. The Company received net proceeds of $1,370 after deducting discounts and commissions to the underwriters and offering expenses. In connection with the over-allotment closing, the Company also issued a warrant to the underwriters to acquire 34,211 shares of common stock at $3.14 per share which shall be exercisable for five years (see Note 14(j)). In addition to the abovementioned commissions to underwriters and offering expenses, the Company incurred an additional $129 of other expenses in connection with the two closings. 

 

(c) Dividend Reinvestment Plan

 

On August 15, 2012, the Company announced that it was offering its stockholders an opportunity to participate in a Dividend Reinvestment Plan (“DRIP “). The Company offered up to 600,000 shares of its common stock for purchase under the DRIP. The DRIP provided participants the ability to invest all or a portion of cash dividends on their Acorn shares in additional shares of the Company’s common stock. The Company issued the shares under the DRIP directly at a 5% discount from the market price. The DRIP was administered by the Company’s stock transfer agent. During the period from January 2013 through March 2013 (when the Company suspended dividend payments), it issued an additional 18,976 shares of common stock under the DRIP (see Note 14(d)). The DRIP is no longer in effect.

 

(d) Dividends

 

In October 2011, the Board of Directors of the Company approved the payment of a quarterly dividend of $0.035 per share. The Company suspended this policy after its March 2013 dividend payment and does not presently intend to pay dividends to stockholders in the foreseeable future. Dividends paid in 2013 were as follows:

 

 

Period   Regular dividend per share     Special dividend per share     Total dividend paid per share     Dividend paid in cash     Value of dividend paid in shares under the DRIP     Total dividend paid     Value of share discount under the DRIP     Number of shares granted under the DRIP  
First quarter 2013   $ 0.035     $ —     $ 0.035     $ 517     $ 117     $ 634     $ 6       18,976  
Year ended December 31, 2013   $ 0.035     $ —     $ 0.035     $ 517     $ 117     $ 634     $ 6       18,976  

 

(e) Summary Employee Option Information

 

The Company’s stock option plans provide for the grant to officers, directors and other key employees of options to purchase shares of common stock. The purchase price may be paid in cash or at the end of the option term, if the option is “in-the-money”, it is automatically exercised “net”. In a net exercise of an option, the Company does not require a payment of the exercise price of the option from the optionee, but reduces the number of shares of common stock issued upon the exercise of the option by the smallest number of whole shares that has an aggregate fair market value equal to or in excess of the aggregate exercise price for the option shares covered by the option exercised. Each option is exercisable to one share of the Company’s common stock. Most options expire within five to ten years from the date of the grant, and generally vest over three year period from the date of the grant. At the annual meeting of stockholders on September 11, 2012, the Company’s stockholders approved an Amendment to the Company’s 2006 Stock Incentive Plan to increase the number of available shares by 1,000,000 and an Amendment to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors to increase the number of available shares by 200,000. At December 31, 2014, 1,122,072 options were available for grant under the 2006 Amended and Restated Stock Incentive Plan and 55,140 options were available for grant under the 2006 Director Plan. In 2013, all options granted to non-employees were from the 2006 Amended and Restated Stock Incentive Plan which permits grants to non-employees. In 2014, there were no grants to non-employees.

 

The Company did not receive any proceeds in connection with stock option exercises during the years ended December 31, 2013 and 2014 as all exercises during those years were “net” exercises. The intrinsic value of options exercised in 2013 and 2014 were $144 and $123, respectively. The intrinsic value of options outstanding and of options exercisable at December 31, 2014 was $0 and $0, respectively.

 

Option grants to directors and officers for the years ended December 31, 2013 and 2014 can be found below:

 

    2013     2014  
    Number of shares     Weighted average exercise price     Number of shares     Weighted average exercise price  
Options granted to - directors and officers during the year     *201,095       5.98       634,103     $ 2.12  
Exercised by directors and officers during the year     30,316       3.30       33,938       2.51  
Forfeited by directors and officers during the year     125,518       4.11       191,062       3.90  
Number of options held by directors and officers at year end     1,179,658       5.30       1,535,428       4.24  

 

* Includes 25,000 options granted to a director of USSI.

 

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years (all in weighted averages):

 

    2013     2014  
Risk-free interest rate     1.8 %     2.1 %
Expected term of options, in years     6.7       7.0  
Expected annual volatility     59 %     64 %
Expected dividend yield     0.2 %     — %
Determined weighted average grant date fair value per option   $ 3.36     $ 1.36  

 

The expected term of the options is the length of time until the expected date of exercising the options. With respect to determining expected exercise behavior, the Company has grouped its option grants into certain groups in order to track exercise behavior and establish historical rates. The Company estimated volatility by considering historical stock volatility over the expected term of the option. The risk-free interest rates are based on the U.S. Treasury yields for a period consistent with the expected term. The Company expects no dividends to be paid. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in determining the estimated fair value of the Company’s stock options granted in the years ended December 31, 2013 and 2014. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

 

(f) Non-Employee Options

 

On February 26, 2013, the Company granted an outside consultant an option for the purchase of 25,000 shares of the Company’s common stock. The options vest over one year, have an exercise price of $6.84 and expire after seven years. The Company used the Black-Scholes valuation method to estimate the fair value of the options granted to the consultant. The Company used a risk free interest rate of 1.3%, an expected life of seven years, an annual volatility of 57% and an annual dividend rate of 2.1% to determine the value the options granted. The Company estimated the fair value of each option granted to be $3.17.

 

In addition, on August 20, 2013, the Company granted an outside consultant an option for the purchase of 20,000 shares of the Company’s common stock. The options vest 5,000 each quarter, have an exercise price of $5.91 and expire after seven years. The Company used the Black-Scholes valuation method to estimate the fair value of the options granted to the consultant. The Company used a risk free interest rate of 2.2%, an expected life of seven years, an annual volatility of 57% and no dividends to determine the value the options granted. The Company estimated the fair value of each option granted to be $3.44.

 

In the years ended December 31, 2013 and 2014, the Company included $42 and $37 respectively, of stock-based compensation expense in selling, general and administrative expense in its Consolidated Statements of Operations with respect to options granted to non-employees.

 

(g) Summary Employee and Non-Employee Option Information

 

A summary of the Company’s option plans as of December 31, 2013 and 2014, as well as changes during each of the years then ended, is presented below:

 

    2013     2014  
    Number of Options (in shares)       Weighted Average Exercise Price     Number of Options (in shares)     Weighted Average Exercise Price  
Outstanding at beginning of year     1,311,397     $ 5.20       1,401,658     $ 5.49  
Granted at market price     246,095       6.06       664,103       2.14  
Exercised *     (30,316 )     3.30       (33,938 )     2.51  
Forfeited or expired     (125,518 )     4.11       (219,395 )     3.96  
Outstanding at end of year     1,401,658       5.49       1,812,428       4.51  
Exercisable at end of year     1,029,507     $ 5.06       1,128,434     $ 5.56  

 

* All shares issued in connection with option exercises were newly issued shares.

 

The breakdown of option exercises between cashless net exercises and cash exercises is as follows the years ended December 31, 2013 and 2014:

 

      Shares granted in net exercise of options     Options forfeited in net exercise of options     Total net exercise options     Weighted average exercise price for net exercise options     Options exercised for cash     Weighted average exercise price for options exercised for cash  
Year ended December 31, 2013         30,316       102,184       132,500     $ 3.30       —       —  
Year ended December 31, 2014         33,938       76,062       110,000     $ 2.51       —       —  

 

 

Summary information regarding the options outstanding and exercisable at December 31, 2014 is as follows:

 

      Outstanding     Exercisable  
Range of Exercise Prices     Number
Outstanding		     Weighted
Average
Remaining
Contractual
Life		     Weighted
Average
Exercise
Price		     Number
Exercisable		     Weighted
Average
Exercise
Price		  
      (in shares)     (in years)           (in shares)        
$0.97 – $2.56       560,615       6.3     $ 1.64       65,500     $ 2.35    
$3.51 – $5.00       426,264       4.5     $ 4.19       336,388     $ 4.24    
$5.05 – $5.91       332,500       3.3     $ 5.22       332,500     $ 5.22    
$6.31 – $7.57       329,690       5.2     $ 6.87       264,021     $ 6.86    
$7.60 – $11.42       163,359       4.8     $ 8.82       130,025     $ 8.78    
        1,812,428                       1,128,434            

 

Stock-based compensation expense included in the Company’s Statements of Operations was:

 

    Year ended
December 31,		  
    2013     2014  
Research and development expense   $ —     $ 35  
Selling, general and administrative expense     927       830  
 Total   $ 927     $ 865  

 

As of December 31, 2014, the total compensation cost related to non-vested awards not yet recognized was approximately $622 which the Company expects to recognize over a weighted-average period of approximately 1.4 years. 

 

(h) DSIT Stock Option Plan

 

In November 2006, the Company adopted a Key Employee Stock Option Plan (the “DSIT Plan”) for its DSIT subsidiary to be administrated by a committee of board members of DSIT, currently comprised of the entire board of directors of DSIT. The purpose of the DSIT Plan and associated grants is to provide incentives to key employees of DSIT to further the growth, development and financial success of DSIT.

 

A summary status of the DSIT Plan as of December 31, 2013 and 2014, as well as changes during the years then ended, is presented below:

 

    2013     2014  
    Number
of
Options
(in
shares)		     Weighted
Average
Exercise
Price		     Number
of
Options
(in
shares)		     Weighted
Average
Exercise
Price		  
Outstanding at beginning of year     238,764     $ 1.69       243,924     $ 1.78  
Granted at fair value     6,700 *   $ 2.70       —     $ —  
Exercised     —     $ —       —     $ —  
Forfeited     (1,540 )*   $ 2.70       (4,500 )   $ 2.41  
Outstanding at end of year     243,924     $ 1.78       239,424     $ 1.67  
Exercisable at end of year     101,904     $ 1.51       101,904     $ 1.45  

 

* The weighted average exercise price of these grants and forfeitures are NIS 9.38 translated to US dollars using the year end exchange rates (NIS 3.47 and NIS 3.89 for the years ended December 31, 2013 and 2014, respectively)

 

In 2013, DSIT granted options to purchase 6,700 of its ordinary shares to an employee of DSIT at an exercise price of NIS 9.38 per share and exercisable for a period of approximately 5.1 years.

 

On July 1, 2013, DSIT modified the vesting terms of all options granted such that options would vest either upon the occurrence of an initial public offering of DSIT or a merger, acquisition, reorganization, consolidation or similar transaction involving DSIT or upon the grantee achieving 25 years of service with DSIT. As a result of the modified vesting terms, DSIT recorded stock-based compensation expense of $160 ($44 in Cost of sales and $116 is Selling, general and administrative expense) during the year ended December 31, 2013. During the year ended December 31, 2014, DSIT recorded stock-based compensation expense of $2 in Cost of sales.

 

Summary information regarding the options under the Plan outstanding and exercisable at December 31, 2014 is as follows:

 

      Outstanding     Exercisable  
Range of Exercise
Prices		     Number
Outstanding		     Weighted
Average
Remaining
Contractual
Life		     Weighted
Average
Exercise
Price		     Number
Exercisable		     Weighted
Average
Exercise
Price		  
      (in shares)     (in years)           (in shares)        
$1.05 – $1.26       147,770       3.6     $ 1.18       81,068     $ 1.20  
$2.41       91,654       3.6     $ 2.41       20,836     $ 2.41  
        239,424             $ 1.67       101,904     $ 1.45  

 

If all the options in the DSIT Plan are exercised, the Company’s holdings in DSIT will be diluted from 88.3% to approximately 77.4% on an as converted basis (see Note 4(b)). 

 

(i) USSI Stock Option Plan

 

In connection with the USSI Purchase Agreement, the Company established a 2012 Stock Plan (the “USSI 2012 Stock Option Plan” or the “Plan”) under which key employees, directors and consultants of USSI may receive options to purchase up to an aggregate of 1,180,000 shares of USSI Common Stock on such terms as the Plan provides and as determined by USSI’s board of directors or by such committee designated by USSI’s board to administer the Plan, if any. USSI granted options to purchase 50,000 of its common shares in 2013 to senior management of USSI under the Plan. The options were granted with an exercise price of $1.72 per share based on a valuation performed by an independent third party and are exercisable for a period of seven years. The options vest over a three to four year period based on date of hire or other benchmark specified in the option agreement. Upon exercise of all the options in the Plan, the Company’s holdings in USSI will be diluted from 95.7% (on an as converted basis) to approximately 88.4% (see Note 4(a)). During the years ended December 31, 2013 and 2014, $133 and $79, respectively, was recorded as stock compensation expense in discontinued operations (see Notes 3 and 21) with respect to the abovementioned options ($41 and $26 in Research and development expenses, net and $92 and $53 in Selling, general and administrative expenses in 2013 and 2014, respectively). The purposes of the Plan for USSI are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to service providers and to promote the success of the business of USSI.

 

A summary status of the USSI 2012 Stock Option Plan as of December 31, 2013 and 2014, as well as changes during the years then ended, is presented below:

 

    2013     2014  
     Number of Options       Weighted Average Exercise Price     Weighted Average Remaining Contractual Life     Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life  
    (in shares)           (in years)     (in shares)           (in years)  
Outstanding at beginning of year     632,375     $ 1.72               636,375       1.72          
Granted at fair value     50,000       1.72               —       —          
Exercised     —       —               —       —          
Forfeited     (46,000 )     1.72               (277,687 )     1.72          
Outstanding at end of year     636,375       1.72       5.7       358,688       1.72       4.7  
Exercisable at end of year     460,619     $ 1.72       5.7       312,126       1.72       4.7  

 

All non-vested options will be forfeited following the termination of substantially all of USSI’s employees in the first quarter of 2015 (see Note 21).

 

(j) Warrants

 

The Company has issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows:

 

    2013     2014  
    Number of shares underlying warrants      Weighted Average Exercise Price     Number of shares underlying warrants     Weighted Average Exercise Price  
Outstanding at beginning of year       28,750     $ 3.68       285,281     $ 3.18  
Granted       262,281       3.14       2,357,142       1.30  
Exercised       (5,750 )     3.68       —       —  
Forfeited or expired       —       —       —       —  
Outstanding and exercisable at end of year       285,281     $ 3.18       2,642,423     $ 1.50  

 

The warrants outstanding at December 31, 2014 have a weighted average remaining contractual life of 5.1 years.

 

The 2,142,847 warrants that were granted in connection with the November 2014 Capital Raise (see Note 14(b)) are exercisable for shares of the Company’s Common Stock. The warrants are non-exercisable for six months from the date of the closing and have a term of five years, six months and an exercise price of $1.30 per share. The Company allocated $1,018 to the value of the warrants based on a Black Scholes calculation using a five and a half year expected life, an annual volatility of 63%, a discount rate of 1.6% and no dividends. The value allocated to the warrants was offset against additional paid-in-capital.

 

In addition, the 214,285 warrants that were granted to the placement agent in connection with the November 2014 Capital Raise (see Note 14(b)) are exercisable for shares of the Company’s Common Stock. The placement agent's warrants are non-exercisable for six months from the date of the closing and have a term of five years and an exercise price of $1.26 per share. The Company allocated $97 to the value of the warrants based on a Black Scholes calculation using a five year expected life, an annual volatility of 62%, a discount rate of 1.6% and no dividends. The value allocated to the warrants was offset against additional paid-in-capital.

 

The 262,281 warrants that were granted in connection with the October 2013 Capital Raises (see Note 14(b)) are exercisable for shares of the Company’s Common Stock for five years at an exercise price of $3.14 per share. The Company allocated $482 to the value of the warrants based on a Black Scholes calculation using a five year expected life, an annual volatility of 62%, a discount rate of 1.4% and no dividends. The value allocated to the warrants was offset against additional paid-in-capital.

 

During the years ended December 31, 2013 the Company did not receive any proceeds from the exercise of warrants. During the year ended December 31, 2013, 2,954 warrants were exercised and 2,796 warrants were forfeited in connection with the cashless net exercise of 5,750 warrants at a weighted average exercise price of $3.68 per share. No warrants were exercised in 2014.