The expense is recorded equally throughout the entire vesting period , which is the time between the date the company grants the options and when the individual is allowed to exercise the option.

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In other words, U. The entry credit is to a special additional paid-in capital account. Each year, the company will record the following compensation entry. If the options are exercised, the additional paid-in capital built up during the vesting period is reversed. If the options are not used before the expiration date, the balance in additional paid-in capital is shifted to a separate APIC account to differentiate it from stock options that are still outstanding. Join Now. Stock Incentive Plans. As of December 31, , options to purchase 1,, shares of common stock were outstanding under the Plan and 1,, shares were available for future issuance under the Plan.

The maximum number of shares that may be issued upon the exercise of ISOs under the Plan is 12,, shares. The Plan was terminated as to future awards in June , although it continues to govern the terms of options that remain outstanding under the Plan. No additional stock awards will be granted under the Plan, and all outstanding stock awards granted under the Plan that are repurchased, forfeited, expire or are cancelled will become available for grant under the Plan in accordance with its terms.

Options granted under the Plan expire no later than 10 years from the date of grant. Options granted under the Plan vest over periods determined by the board of directors, generally over four years. The Plan allows for early exercise of certain options prior to vesting. Upon termination of employment, the unvested shares are subject to repurchase at the original exercise price. As of December 31, , options to purchase 1,, shares of common stock were outstanding under the Plan.

The number of shares of common stock initially reserved for issuance under the ESPP was , shares. Additional six-month offering periods began on May 16, and on November 16, Stock Option Activity. Number of. Exercise Price. Weighted Average. Contractual Term. Intrinsic Value. Outstanding at December 31, Options granted. The Company recognized stock-based compensation expense as follows:.

Employee awards:. Stock options. Restricted stock awards.

Non-employee awards:. Stock-based compensation expense was recognized in the accompanying statements of operations as follows:. The total unrecognized stock-based compensation expense will be adjusted for future changes in estimated forfeitures. Comprehensive Loss. The comprehensive loss for all periods presented does not differ from the reported net loss. Advertising Costs. Advertising costs are charged to operations as incurred. Recent Accounting Pronouncements. ASU No. GAAP for measuring fair value and for disclosing information about fair value measurements.

Additionally, ASU No. The amendments in this update are to be applied prospectively. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, Nonpublic entities may apply the amendments early, but no earlier than for interim periods beginning after December 15, Fair Value Measurements. Fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:. Level 1: Observable inputs, such as quoted prices for identical assets or liabilities in active markets;.

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Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities, or market-corroborated inputs; and. Level 3: Unobservable inputs for which there is little or no market data which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities. The valuation techniques that may be used to measure fair value are as follows:.

Stock Option Compensation Accounting

Embedded put option associated with convertible notes Note 5. As more fully described in Note 5, the convertible promissory notes were converted into shares of convertible preferred stock and common stock during the year ended December 31, and the related embedded put option was derecognized at that time. The Company measures eligible assets and liabilities at fair value, with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting.

The Company did not elect to remeasure any of its existing financial assets or liabilities, and did not elect the fair value option for any financial assets and liabilities transacted in the year ended December 31, or in the period from January 8, Inception through December 31, Commitments and Contingencies. Operating Lease Commitments. The Company leases its facilities under cancelable and non-cancelable operating leases. These operating leases expire at various dates through May The Company is recording the related rent expense on a straight-line basis over the term of the lease.

Stock option expensing

The lease incentives are considered an inseparable part of the lease agreement, and are recognized as a reduction of rent expense on a straight-line basis over the term of the lease. The Company does not have any other contractual purchase obligations as of December 31, Legal Matters. From time to time, and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation.

At December 31, , the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its financial position, results of operations, or cash flows. Guarantees and Indemnification Obligations. The Company typically enters into indemnification agreements in the ordinary course of business. The term of these indemnification agreements is generally perpetual after execution of the agreement.

Accounting For Stock Compensation | Seeking Wisdom

Based on historical experience and information known as of December 31, , the Company has not incurred any costs for the above guarantees and indemnities. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the potential exposure under these agreements is immaterial.

Convertible Notes Payable. Proceeds received by the Company are in consideration for convertible promissory notes issued to the investors.

Stock Transactions

The Notes contained a put option and a contingent conversion feature as follows:. The requirement to pay the Change in Control Premium results in a premium to the holders of the Notes that is not considered clearly and closely related to the debt host and results in an embedded derivative that must be bifurcated and accounted for separately from the debt host.

Accordingly, upon the issuance of the Notes, the Company recorded the estimated fair value of this. The derivative liability is recorded at fair value with changes in fair value recognized in interest income expense , net. In comparison to the fair market value of the preferred stock and common stock issued to settle the accrued paid-in-kind interest, the effective conversion rate represented a beneficial conversion feature.

Convertible Preferred Stock. The Preferred Stock has the following rights and privileges:. Such dividends shall not be cumulative. No such dividends have been declared to date. In addition, the holders of the Preferred Stock are entitled to receive a dividend equal to any dividend paid on common stock, when and if declared by the board, on the basis of the number of common shares into which a share of Preferred Stock may be convertible. Common Stock. Shares of common stock have the following rights and privileges:.

The holders of common stock shall be entitled to elect both members of the Board of Directors. Convertible Security. In June , the Company repurchased , shares of common stock from Y Combinator pursuant to an amendment to the Common Stock Purchase Agreement. The convertible security provided contingent conversion rights at the time of a qualified equity financing, as defined. Upon conversion, the holder would receive the number of preferred shares equal to the. In the event the convertible security is not converted in connection with a qualified equity financing, the convertible security shall expire and shall no longer be convertible upon the earlier to occur of i February 2, , ii any change in control or iii an initial public offering, as defined.