Quarterly report pursuant to Section 13 or 15(d)

Stock Based Compensation

v3.19.2
Stock Based Compensation
6 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Stock Based Compensation

NOTE 15 - Stock Based Compensation

 

In March 2014, Aircom’s Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”). The Aircom 2014 Plan provided for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of Aircom. On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom 2014 Plan and agreed to grant options to purchase an aggregate of 1,088,882 shares of the Company’s common stock to Aircom’s stock option holders.

 

One-third of stock option shares vested on the first anniversary of the grant date or the employee’s acceptance to serve the Company, and the remainder of the grant vested and will vest in 36 equal monthly installments thereafter, subject to the grantee’s continuous service through the applicable vesting date. Option prices for such options were determined by Aircom’s Board of Directors. The Aircom 2014 Plan became effective upon its adoption by the Board and shall continue in effect for a term of 10 years unless sooner terminated under the terms of Aircom 2014 Plan.

 

On May 5, 2017, the Board of Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan” and together with the Aircom 2015 Plan, the “Plans”) and the reservation of 1,000,000 shares of the Company’s common stock for future grant or issuance under the Aerkomm 2017 Plan. On June 23, 2017, the Board of Directors voted to increase the number of shares of common stock reserved for future grant or issuance under the Aerkomm 2017 Plan to 2,000,000 shares. The Aerkomm 2017 Plan provides for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of the Company, as determined by the Compensation Committee of the Board of Directors (or, prior to the establishment of the Compensation Committee on January 23, 2018, the Board of Directors).

 

On June 23, 2017, the Board of Directors approved the grant of options to purchase an aggregate of 291,000 shares under the Aerkomm 2017 Plan to certain officers and directors of the Company. The option agreements are classified into three types of vesting schedules, which include, 1) 1/6 of the shares subject to the option shall vest commencing on the vesting start date and the remaining shares shall vest at the rate of 1/60 for the next 60 months on the same day of the month as the vesting start date; 2) 1/4 of the shares subject to the option shall vest commencing on the vesting start date and the remaining shares shall vest at the rate of 1/36 for the next 36 months on the same day of the month as the vesting start date; 3) 1/3 of the shares subject to the option shall vest commencing on the first anniversary of vesting start date and the remaining shares shall vest at the rate of 50% each year for the next two years on the same day of the month as the vesting start date.

 

On July 31, 2017, the Board of Directors approved the grant of options to purchase an aggregate of 109,000 shares under the Aerkomm 2017 Plan to 11 of its employees. One-third of these shares subject to the options vested on the first anniversary of the grant date, one-third of the shares vested on the second anniversary of the grant date, and the remaining shares shall vest on the third anniversary of the grant date.

 

On December 29, 2017, the Board of Directors approved the grant of options to purchase 4,000 shares under the Aerkomm 2017 Plan to each of three of the Company’s independent directors for an aggregate of 12,000 shares. All of these options vested immediately upon grant.

 

On June 19, 2018, the Compensation Committee approved the grant of options to purchase 32,000 and 30,000 shares under the Aerkomm 2017 Plan to two of the Company executives. One-fourth of the 32,000 shares subject to the option vested on May 1, 2019, and the remaining shares shall vest in three equal yearly installments thereafter. One-third of the 30,000 shares subject to the option vested on May 29, 2019, and the remaining shares shall vest in two equal yearly installments thereafter.

 

On September 16, 2018 and December 29, 2018, the Compensation Committee approved the grant of options to purchase 4,000 shares under the Aerkomm 2017 Plan to each of four of the Company’s independent directors for an aggregate of 16,000 shares. All of these options vested immediately upon grant.

 

On July 2, 2019, the Board of Directors approved the grant of options to purchase an aggregate of 339,000 shares under the Aerkomm 2017 Plan to 22 of its directors, officers and employees. 25% of the shares vested on the grant date, 25% of the shares vested on July 17, 2019, 25% of the shares will vest on the first anniversary of the grant date, and 25% of the shares will vest upon the second anniversary of the grant date.

 

Option price is determined by the Compensation Committee. The Aerkomm 2017 Plan has been adopted by the Board and shall continue in effect for a term of 10 years unless sooner terminated under the terms of Aerkomm 2017 Plan. The Aerkomm 2017 Plan was approved by the Company’s stockholders on March 28, 2018. 

 

Valuation and Expense Information

 

Measurement and recognition of compensation expense based on estimated fair values is required for all share-based payment awards made to its employees and directors including employee stock options. The Company recognized compensation expense of $659,591 and $659,264 for the six-month periods ended June 30, 2019 and 2018, respectively, related to such employee stock options.

 

Determining Fair Value

 

Valuation and amortization method

 

The Company uses the Black-Scholes option-pricing-model to estimate the fair value of stock options granted on the date of grant or modification and amortizes the fair value of stock-based compensation at the date of grant on a straight-line basis for recognizing stock compensation expense over the vesting period of the option.

 

 Expected term

 

The expected term is the period of time that granted options are expected to be outstanding. The Company uses the SEC’s simplified method for determining the option expected term based on the Company’s historical data to estimate employee termination and options exercised.

 

Expected dividends

 

The Company does not plan to pay cash dividends before the options are expired. Therefore, the expected dividend yield used in the Black-Scholes option valuation model is zero.

 

Expected volatility

 

Since the Company has no historical volatility, it used the calculated value method which substitutes the historical volatility of a public company in the same industry to estimate the expected volatility of the Company’s share price to measure the fair value of options granted under the Plans.

 

Risk-free interest rate

 

The Company based the risk-free interest rate used in the Black-Scholes option valuation model on the market yield in effect at the time of option grant provided in the Federal Reserve Board’s Statistical Releases and historical publications on the Treasury constant maturities rates for the equivalent remaining terms for the Plans.

 

Forfeitures

 

The Company is required to estimate forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate option forfeitures and records share-based compensation expense only for those awards that are expected to vest.

 

The Company used the following assumptions to estimate the fair value of options granted in 2018 under the Plans as follows:

 

Assumptions      
Expected term     10 years  
Expected volatility     59.83% - 61.78 %
Expected dividends     0 %
Risk-free interest rate     2.72% - 2.99 %
Forfeiture rate     0% - 5 %

 

Aircom 2014 Plan

 

A summary of the number of shares, weighted average exercise price and estimated fair value of options for Aircom 2014 Plan as of December 31, 2018 and June 30, 2019 is as follows:

 

    Number of Shares     Weighted Average Exercise Price Per Share     Weighted Average Fair Value Per Share  
Options outstanding at January 1, 2018     932,262     $ 0.4081     $ 0.1282  
Granted     -       -       -  
Exercised     -       -       -  
Forfeited/Cancelled     -       -       -  
Options outstanding at December 31, 2018     932,262       0.4081       0.1282  
Granted     -       -       -  
Exercised     -       -       -  
Forfeited/Cancelled     -       -       -  
Options outstanding at June 30, 2019     932,262       0.4081       0.1282  
                         
Options exercisable at December 31, 2018     846,287       0.2892       0.0908  
                         
Options exercisable at June 30, 2019     932,262       0.4081       0.1282  

 

A summary of the status of nonvested shares under Aircom 2014 Plan as of December 31, 2018 and June 30, 2019 is as follows:

 

    Number of Shares     Weighted
Average
Exercise Price Per
Share
 
Options nonvested at January 1, 2018     302,467     $ 0.8315  
Granted     -       -  
Vested     (216,492 )     0.5349  
Forfeited/Cancelled     -       -  
Options nonvested at December 31, 2018     85,975       1.5786  
Granted     -       -  
Vested     (85,975 )     1.3700  
Forfeited/Cancelled     -       -  
Options nonvested at June 30, 2019     -       -  

 

Aerkomm 2017 Plan

 

A summary of the number of shares, weighted average exercise price and estimated fair value of options under Aerkomm 2017 Plan as of December 31, 2018 and June 30, 2019 is as follows:

 

    Number of Shares     Weighted Average Exercise Price Per Share     Weighted Average Fair Value Per Share  
Options outstanding at January 1, 2018     253,000     $ 30.8824     $ 18.4796  
Granted     78,000       19.7462       9.2500  
Exercised     -       -       -  
Forfeited/Cancelled     (48,000 )     27.5000       16.4610  
Options outstanding at December 31, 2018     283,000       28.3867       16.2781  
Granted     -       -       -  
Exercised     -       -       -  
Forfeited/Cancelled     -       -       -  
Options outstanding at June 30, 2019 (unaudited)     283,000       28.3867       16.2781  
                         
Options exercisable at December 31, 2018     111,589       28.7052       16.5968  
                         
Options exercisable at June 30, 2019 (unaudited)     143,839       27.5782       15.6913  

 

A summary of the status of nonvested shares under Aerkomm 2017 Plan as of June 30, 2019 and December 31, 2018 is as follows:

 

    Number of Shares     Weighted
Average
Exercise Price Per
Share
 
Options nonvested at January 1, 2018     168,250     $ 32.4079  
Granted     78,000       19.7462  
Vested     (74,839 )     28.8962  
Forfeited/Cancelled     -       -  
Options nonvested at December 31, 2018     171,411       28.1794  
Granted     -       -  
Vested     (32,250 )     23.6783  
Forfeited/Cancelled     -       -  
Options nonvested at June 30, 2019 (unaudited)     139,161       29.2225  

 

As of June 30, 2019 and December 31, 2018, there were approximately $1,542,000 (unaudited) and $2,174,000, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1 - 5 years.