Quarterly report pursuant to Section 13 or 15(d)

Share-based Compensation

v3.20.2
Share-based Compensation
9 Months Ended
Sep. 30, 2020
Share-based Compensation  
Share-based Compensation

14.    Share-based Compensation

 

On August 28, 2019, the Company adopted the 2019 Long-Term Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights (“SARs”), restricted stock units, performance awards, dividend equivalent rights and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of common stock of the Company or a combination of cash and shares of common stock of the Company. The Company reserved a total of 2,000,000 shares of the Company’s common stock for awards under the 2019 Plan. Effective as of May 26, 2020, the Board approved an increase of the number of authorized shares of common stock reserved under the 2019 Plan from 2,000,000 shares of common stock to 17,000,000 shares of common stock all of which may be delivered pursuant to incentive stock options. Subject to adjustments pursuant to the 2019 Plan, the maximum number of shares of common stock with respect to which stock options or SARs may be granted to an executive officer during any calendar year is 500,000 shares of common stock.

Incentive stock options

In August 2019, pursuant to the terms of the 2019 Plan, the Company awarded options to purchase an aggregate of 1,000,000 shares of common stock to two of its employees and one contractor. Pursuant to the terms of the option agreements, 50% of such options vested on the date of grant, and the remaining 50% of such options will vest on the first anniversary of the date of grant.  The term of the options is ten years.

On February 17, 2020, the Company granted certain equity awards to the members of the Company's Board of Director with the following terms: each of Messrs. Stefansky and Stein received two annual awards of stock options equal to $40,000 of the Company's common stock, granted under the Company 2019 Long-Term Incentive Plan (the "Incentive Plan"), with (i) the first grant being the right to purchase up to 2,857,141 shares of the Company's common stock at a per share exercise price of $0.014 with one-half of such option vesting on March 31, 2020 and the remaining one-half vesting in equal installments on June 30, 2020 and September 30, 2020, respectively, and with an acceleration of any unvested options upon the departure of applicable Board member from the Board for any reason and (ii) the second grant being the right to purchase up to a number of shares of the Company's common stock equal to $40,000 divided by the Fair Market Value (as defined in the Incentive Plan) of the Company's common stock as of October 10, 2020 at a per share exercise price equal to Fair Market Value of the Company's common stock as of October 10, 2020 with one-fourth of such option vesting on each of December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021, respectively, and with an acceleration of any unvested options upon the departure of applicable Board member from the Board for any reason.

In July 2020, pursuant to the terms of the 2019 Plan, the Company awarded options to purchase an aggregate of 5,325,000 shares of common stock to two of its employees and one contractor. Pursuant to the terms of the option agreements, 325,000 of the options vested on the date of grant, and of the 5,000,000 options, 10% of such options vested on the date of grant, and the remaining of such options will vest upon meeting established criteria. The term of the options is ten years.

The following table contains information about the 2019 Plan as of September 30, 2020:

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Awards 

 

 

Awards Reserved for

 

 

 

Available for

 

 

Issuance

 

Awards Issued

 

Grant

2019 Plan

 

17,000,000

 

12,467,853

 

4,532,147

 

The following table summarizes the Company’s incentive stock option activity and related information for the nine months ended September 30, 2020 and the period from Spin-Off through December 31, 2019:

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted Average

 

 

Number of 

 

Weighted Average

 

Contractual 

 

 

Options

 

Exercise Price

 

Term in Years

Outstanding at June 21, 2019

 

 —

 

 

 —

 

 —

Granted

 

1,000,000

 

$

0.053525

 

10.0

Exercised

 

 —

 

 

 —

 

 —

Forfeited

 

 —

 

 

 —

 

 —

Cancelled

 

 —

 

 

 —

 

 —

Expired

 

 —

 

 

 —

 

 —

Outstanding at December 31, 2019

 

1,000,000

 

$

0.053525

 

9.6

 

 

 

 

 

 

 

 

Granted

 

11,039,282

 

$

0.01

 

10.0

Exercised

 

 —

 

 

 —

 

 —

Forfeited

 

 —

 

 

 —

 

 —

Cancelled

 

 —

 

 

 —

 

 —

Expired

 

 —

 

 

 —

 

 —

Outstanding at September 30, 2020

 

12,039,282

 

$

0.017283

 

9.35

Exercisable at September 30, 2020

 

6,876,782

 

$

0.016874

 

9.35

 

As of September 30, 2020, vested outstanding stock options had no intrinsic value as the exercise price is greater than the estimated fair value of the underlying common stock. As of September 30, 2020, there was approximately $0 thousand of total unrecognized share-based compensation related to unvested stock options.

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period.  The following assumptions were used to calculate share-based compensation expense for the nine months ended September 30, 2020:

 

 

 

 

 

Volatility

    

152.92% -  153.01

%

Risk-free interest rate

 

0.31% - 1.39

%

Dividend yield

 

0.0

%

Expected term

 

5.0-6.0

years

 

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Accordingly, the Company has elected to use the “simplified method” to estimate the expected term of its stock-based awards. The simplified method computes the expected term as the sum of the award’s vesting term plus the original contractual term divided by two.

Based on the lack of historical data of volatility for the Company’s common stock, the Company based its estimate of expected volatility on a weighted-average of the historical volatility of comparable public companies that manufacture similar products and are similar in size, stage of life cycle, and financial leverage.

 

Restrictive stock awards

 

On February 17, 2020, the Company granted a restricted stock award of 5,928,571 shares of the Company’s common stock to the Company’s Chief Executive Officer and Interim Chief Financial Officer, Adam Levy, with the following vesting terms: (i) 3/12th of such shares vested as of February 17, 2020; (ii) 1/12th of such shares vest on each of the eight months following February 17, 2020 and (iii) all remaining shares vest on September 10, 2020.

 

 

 

 

 

 

 

 

 

Number of

 

Weighted Average

 

    

Units

    

Grant Date Fair Value

 

 

 

 

 

 

Granted

 

5,928,571

 

$

0.014

Exercised and converted to common shares

 

 —

 

 

 —

Forfeited

 

 —

 

 

 —

Outstanding at September 30, 2020

 

5,928,571

 

$

0.014

Exercisable at September 30, 2020

 

5,928,571

 

$

0.014

 

Under ASC 718, Compensation-Stock Compensation (“ASC 718”), the Company has measured the value of its February 2020 award as if it were vested and issued on the grant date with a value of $83 thousand based on the closing price of the Company's stock at the grant date of the RSU Grant ($0.014 per share). As of September 30, 2020, there was approximately $0 thousand of total unrecognized share-based compensation related to restricted stock awards, which the Company expects to recognize over the next 3 months.

 

Compensation expense will be recognized ratably over the total vesting schedule. The Company will periodically adjust the cumulative compensation expense for forfeited awards. Stock based compensation of $187 thousand has been recorded for the nine months ended September 30, 2020.