Stockholders' Equity | 12 Months Ended |
Dec. 31, 2013 |
Stockholders' Equity [Abstract] | ' |
Stockholders' Equity | ' |
| 10 | Stockholders' Equity | | | | | | | | | | | | | | | | | | |
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Preferred Stock |
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There are 18,598 shares of series A convertible preferred stock outstanding at December 31, 2013. The series A preferred stock is convertible into common stock on a one-for-one basis, bears no dividend, has a liquidation preference of $32.00 per share, votes as a class on matters affecting the series A preferred stock and has voting rights identical to the common stock on all other matters. |
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There are 54,734 shares of series B convertible preferred stock outstanding at December 31, 2013. The series B preferred stock is convertible into common stock on a one-for-one basis, bears no dividend, has a liquidation preference of $48.00 per share, votes as a class on matters affecting the series B preferred stock and has voting rights identical to the common stock on all other matters. |
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The certificates of designations, voting powers, preferences and rights of the Company's series A and B and former C and D convertible preferred stock provide, among other items, that the 1:1 preferred stock to common stock conversion ratio will be adjusted as of the closing date of any offering of common stock issued at less than the prevailing market price. In the event the market price exceeds the offering price of the common stock, the conversion ratios of any series of preferred stock then outstanding are to be adjusted in accordance with a prescribed formula. |
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Subsequent to the issuances of the preferred stock, the Company has undertaken a number of common stock offerings that would impact the above described adjustments to the preferred stock conversion ratios. As of December 31, 2013, current series A and B preferred stockholders holding 73,332 preferred shares are entitled to receive an aggregate of 121,089 shares (47,757 additional shares) of common stock upon conversion of their holdings, as a result of the conversion ratio adjustments. The number of shares issuable upon conversion is subject to further adjustment should the Company in the future undertake one or more offerings of its common stock at less than the prevailing market price. Previous preferred stockholders who have converted their preferred shares will receive an additional 1,397 shares of common stock as a result of the conversion ratio adjustments. In 2013 the Company issued 140,086 common shares to prior holders of the preferred stock based on the adjustment of the conversion ratios. |
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The 49,154 incremental shares associated with the conversion ratio adjustment will be recorded to common stock at par with the offset to additional paid in capital as all of the convertible preferred stock was issued prior to the November 16, 2000 effective date of certain provisions of ASC 470 (formerly, EITF 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments). |
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Common Stock |
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On May 22, 2013, stockholders of the Company approved the proposal to increase the number of authorized shares of common stock from 25,000,000 to 35,000,000. On May 29, 2013, the Company amended its Articles of Incorporation to reflect the increase in the number of authorized shares of common stock. |
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During 2013, the Company issued 822,348 shares of common stock consisting of 556,855 shares upon the exercise of stock purchase warrants and options for which the Company received $2,817,001 (net of $45,368 in expenses), 140,086 shares in connection with the preferred stock ratio adjustments, 120,957 shares in connection with the vesting of 145,650 shares of restricted common stock units net of the shares withheld for payment of withholding taxes, and 4,450 shares to a retired director of the Company for consulting services. |
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In 2012, the Company received net cash proceeds of $51,461,053 (net of $4,605,439 in commission and other offering expenses) from the sale of 5,646,300 shares of common stock. On April 5, 2012, 2,125,000 common stock shares were sold at $9.25 per share and on December 5, 2012, 3,521,300 common stock shares were sold at $10.34 per share. The Company used and intends to continue to use the net proceeds from the offerings for the continued development of its pharmaceutical product DSC127 and for general corporate purposes. |
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During 2012, the Company issued 255,210 shares of common stock upon the exercise of stock purchase warrants and options and received $1,225,620 (net of $10,560 in issuance costs); 43,081 net shares of common stock in connection with the vesting of 51,500 shares of restricted stock units, net of the shares withheld for payment of minimum withholding taxes; and 2,500 shares of common stock to a retiring director of the Company for past services. |
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Stock Purchase Warrants |
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At December 31, 2013, the Company had warrants outstanding to purchase shares of the Company's common stock consisting of the following: |
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Series | | Number of Warrants | | | Exercise Price | | | Expiration Date | | | | | | | | | | |
L | | | 6,250 | | | $ | 3.12 | | | 31-Mar-14 | | | | | | | | | | |
N | | | 100,000 | | | $ | 6.25 | | | 22-Feb-15 | | | | | | | | | | |
O | | | 230,900 | | | $ | 5.5 | | | 22-Feb-15 | | | | | | | | | | |
P | | | 2,187 | | | $ | 6.25 | | | 16-Feb-15 | | | | | | | | | | |
Q | | | 133,333 | | | $ | 5.5 | | | 22-Feb-15 | | | | | | | | | | |
R | | | 1,832,602 | | | $ | 9.9 | | | 22-Jun-16 | | | | | | | | | | |
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Total | | $ | 2,305,272 | | | | | | | | | | | | | | | | | |
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During 2013, a total of 624,882 warrants were exercised on a for cash and cashless basis consisting of 367,814 Series K, 200,893 Series J, 53,667 Series O, and 2,508 Series P warrants. A total of 421,465 shares of common stock were issued in connection with the 2013 warrant exercises. In 2012 a total of 135,548 warrants were exercised on a cash basis consisting of 47,333 series O, 66,965 series J and 21,250 series K warrants. A total of 135,548 shares of common stock were issued in connection with the 2012 warrant exercises. |
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Equity Based Compensation |
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Under the Derma Sciences, Inc. 2012 Equity Incentive Plan (the "EIP Plan") the Company is authorized to issue shares of common stock. On May 22, 2013, stockholders of the Company approved the proposal to increase the number of authorized shares of common stock the Company can issue from 2,812,500 to 4,500,000. The EIP Plan authorizes the Company to grant equity-based and cash-based incentive compensation in the form of stock options, stock appreciation rights, restricted shares, restricted share units, other share-based awards and cash-based awards, for the purpose of providing the Company's employees, non-employee directors and consultants with incentives and rewards for performance. At December 31, 2013, options to purchase 1,814,233 shares and 720,550 restricted share units were issued and outstanding under the EIP Plan and 1,394,480 shares were available for grant. |
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Stock Options |
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The EIP Plan permits the granting of both incentive and nonqualified stock options to employees and nonqualified stock options to non-employee directors and consultants of the Company. The option exercise price may not be less than the fair market value of the stock on the date of the grant of the option. The duration of each option may not exceed 10 years from the date of grant. |
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For the years ended December 31, 2013 and 2012, the fair value of each option award was estimated at the date of grant using the Black-Scholes option-pricing model. The weighted-average assumptions for the years ended December 31, 2013 and 2012 were as follows: |
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| | 2013 | | | 2012 | | | | | | | | | | | | | |
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Risk-free interest rate | | | 1.22 | % | | | 1.11 | % | | | | | | | | | | | | |
Volatility factor | | | 69.9 | % | | | 73.6 | % | | | | | | | | | | | | |
Dividend yield | | | 0 | % | | | 0 | % | | | | | | | | | | | | |
Expected option life (years) | | | 6.14 | | | | 6.25 | | | | | | | | | | | | | |
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The risk-free rate utilized represents the U.S. treasury yield curve rate for the expected option life at the time of grant. The volatility factor was calculated based on the Company's historical stock price volatility equal to the expected life of the option at the grant date. The dividend yield is 0% since the Company does not anticipate paying dividends in the near future. The simplified expected option life method is used to determine the expected option life for Company employees and directors while the contractual option life period is utilized for consultants. |
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Based on the Company's historical experience of options that were forfeited before becoming fully vested, the Company has assumed an annualized forfeiture rate of 1.0% for all options. The Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated. |
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A summary of the Company's stock option activity and related information for the years ended December 31, 2013 and 2012 follows: |
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| | 2013 | | | 2012 | | | | | |
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| | Options | | | Weighted Average Exercise Price | | | Options | | | Weighted Average Exercise Price | | | | | |
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Outstanding - beginning of year | | | 1,639,985 | | | $ | 6.38 | | | | 1,582,683 | | | $ | 5.82 | | | | | |
Granted | | | 421,480 | | | $ | 12.14 | | | | 268,160 | | | $ | 8.93 | | | | | |
Forfeited | | | (36,878 | ) | | $ | 10.99 | | | | (61,825 | ) | | $ | 7.53 | | | | | |
Exercised | | | (184,824 | ) | | $ | 5.5 | | | | (149,033 | ) | | $ | 4.37 | | | | | |
Expired | | | (25,530 | ) | | $ | 13.16 | | | | - | | | | - | | | | | |
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Outstanding - end of year | | | 1,814,233 | | | $ | 7.67 | | | | 1,639,985 | | | $ | 6.38 | | | | | |
Expected to vest - end of year | | | 1,796,091 | | | $ | 7.67 | | | | 1,623,585 | | | $ | 6.38 | | | | | |
Exercisable at end of year | | | 1,443,409 | | | $ | 6.84 | | | | 1,208,077 | | | $ | 5.86 | | | | | |
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During 2013 and 2012, the Company granted 300,880 and 199,460 service based options and 120,600 and 68,700 performance based options to Company employees, directors and consultants, respectively. The weighted average fair value per share of options granted during the years ended December 31, 2013 and 2012 was $8.30 and $5.93, respectively. |
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During 2013, 184,824 stock options were exercised on a for cash and cashless basis. A total of 135,390 shares of common stock were issued in connection with the 2013 stock option exercises. During 2012, 149,033 stock options were exercised on a for cash or cashless basis. A total of 119,662 common stock shares were issued in connection with the 2012 stock option exercises. |
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The aggregate intrinsic value of outstanding and exercisable stock options was $6,287,268 and $5,967,544, respectively, at December 31, 2013. The intrinsic value represents the difference between the Company's closing stock price on the last trading day of the year of $10.82 and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all exercised their options on December 31, 2013. The intrinsic value of options exercised in 2013 and 2012 was $1,286,818 and $792,315, respectively. |
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The following table summarizes information related to stock options outstanding and exercisable at December 31, 2013: |
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| | Options Outstanding | | | Options Exercisable | |
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Range of | | Number Outstanding | | | Weighted-Average Remaining Contractual Life | | | Weighted-Average Exercise Price | | | Number Exercisable | | | Weighted-Average Exercise Price | |
Exercise Prices |
$2.88 - $4.00 | | | 251,961 | | | | 3.38 | | | $ | 3.43 | | | | 251,961 | | | $ | 3.43 | |
$4.01 - $6.00 | | | 473,412 | | | | 5.18 | | | $ | 5.13 | | | | 463,912 | | | $ | 5.13 | |
$6.01 - $10.00 | | | 610,470 | | | | 6.77 | | | $ | 8.03 | | | | 500,799 | | | $ | 7.95 | |
$10.01 - $13.99 | | | 478,390 | | | | 8.59 | | | $ | 11.97 | | | | 226,737 | | | $ | 11.66 | |
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| | | 1,814,233 | | | | 6.36 | | | $ | 7.67 | | | | 1,443,409 | | | $ | 6.84 | |
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During the years ended December 31, 2013 and 2012, stock option compensation expense was recorded as follows: |
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| | 2013 | | | 2012 | | | | | | | | | | | | | |
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Cost of sales | | $ | 95,726 | | | $ | 39,789 | | | | | | | | | | | | | |
Selling, general and administrative expenses | | | 2,087,827 | | | | 1,470,269 | | | | | | | | | | | | | |
Research and development | | | 165,581 | | | | 103,289 | | | | | | | | | | | | | |
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Total stock option compensation expense | | $ | 2,349,134 | | | $ | 1,613,347 | | | | | | | | | | | | | |
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As of December 31, 2013, there was $1,645,272 of unrecognized compensation cost related to non-vested service based awards granted under the plan. These costs are expected to be recognized over the options' remaining weighted average vesting period of 1.91 years. There was no unrecognized compensation cost related to non-vested performance based awards at December 31, 2013. |
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Restricted Share Units |
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The Company has issued service, performance and market based restricted share units to employees and directors of the Company. Expense for restricted share awards is amortized on a straight-line basis over the awards' vesting period. |
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The following table summarizes the restricted share unit activity for the period: |
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| | 2013 | | | 2012 | | | | | |
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| | Number of | | | Weighted | | | Number of | | | Weighted | | | | | |
Units | Average Fair Value | Units | Average Fair Value | | | | |
Unvested - beginning of year | | | 786,900 | | | $ | 8.78 | | | | 51,500 | | | $ | 7.07 | | | | | |
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Granted | | | 79,300 | | | | 13.65 | | | | 786,900 | | | | 8.78 | | | | | |
Vested | | | (145,650 | ) | | | 10.18 | | | | (51,500 | ) | | | 7.07 | | | | | |
Unvested - end of year | | | 720,550 | | | $ | 9.03 | | | | 786,900 | | | $ | 8.78 | | | | | |
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In May 2013, the Company granted 38,200 restricted share units to members of the board of directors which will vest one year from the grant date. The fair market value at the grant date determined by the quoted market price was $525,632, or $13.76 per share. In February 2013, the Company granted 26,100 performance based restricted share units to executives which vested on December 31, 2013. The fair market value at the grant date was $359,136, or $13.76 per share. |
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Also during 2013, the Company granted 10,000 service-based restricted share units to a new board member vesting 25% each year beginning one year from grant date and 5,000 restricted share units to a former member of the board for past services, which were immediately vested. The aggregate fair market value at the grant date determined by the quoted market price of these awards was $198,000. |
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In December 2012, the Company granted 330,000 service-based restricted share units to employees and members of the board of directors which will vest 25% annually over a four year period from the grant date. The fair market value at the grant date determined by the quoted market price was $3,544,200, or $10.74 per share. Also in December 2012, the Company granted 405,000 market-based restricted share units to employees which will vest three years from the grant date based on the achievement of certain market conditions. The fair market value at the grant date determined by the binomial/lattice pricing model was $2,904,700, or $7.17 per share. |
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Also during 2012, the Company granted 27,900 performance-based restricted share units to employees vesting one year from grant date and 24,000 service based restricted share units to members of the board of directors vesting one year from grant date. The aggregate fair market value at the grant date determined by the quoted market price of these awards was $459,205. |
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In connection with the vesting of restricted share unit awards during the year ended Decmeber 31, 2013, 24,693 common stock shares with a fair value of $228,149 were withheld in satisfaction of employee tax withholding obligations. In connection with the vesting of restricted share unit awards during the year ended December 31, 2012, 8,419 common stock shares with a fair value of $80,550 were withheld in satisfaction of employee minimum tax withholding obligations. |
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During 2013 and 2012, restricted share unit compensation expense was $2,634,340 and $490,870, respectively, and included in selling, general and administrative expense. |
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As of December 31, 2013, the intrinsic value of the non-vested awards was $7,796,351 and there was $4,702,124 of unrecognized compensation cost related to unvested restricted share unit awards. These costs are expected to be recognized over the restricted shares units' remaining weighted average vesting period of 2.11 years. |
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During 2013, in consideration of prior service to the Company, a retiring director received 5,000 restricted share units, accelerated vesting of any unvested stock options and restricted share units and extended the date to exercise vested stock options to the earlier of 36 months or the awards original expiration date (versus 90 days) from the date of the retirement. Also, during 2013, the Company granted 4,450 shares of common stock to a former director for consulting services. An additional $337,422 of stock based compensation expense was recognized during 2013 and included in selling, general and administrative expense in connection with these activities. During 2012, in consideration of prior service to the Company, a retiring director received 2,500 shares of common stock, acceleration of vesting of any unvested restricted share units and extension of the date to exercise vested stock options to 36 months (versus 90 days) as of that date. Included in stock based compensation is a charge of $137,393 in connection with these benefits. |
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Shares Reserved for Future Issuance |
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At December 31, 2013, the Company had reserved the following shares of common stock for future issuance: |
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Convertible preferred shares (Series A - B) | | | 73,332 | | | | | | | | | | | | | | | | | |
Additional stock issuable related to conversion of | | | | | | | | | | | | | | | | | | | | |
preferred stock | | | 49,154 | | | | | | | | | | | | | | | | | |
Common stock options outstanding | | | 1,814,233 | | | | | | | | | | | | | | | | | |
Common stock warrants outstanding | | | 2,305,272 | | | | | | | | | | | | | | | | | |
Restricted share units outstanding | | | 720,550 | | | | | | | | | | | | | | | | | |
Common stock equivalents available for grant | | | 1,394,480 | | | | | | | | | | | | | | | | | |
Total common stock shares reserved | | | 6,357,021 | | | | | | | | | | | | | | | | | |