Quarterly report pursuant to Section 13 or 15(d)

Stock Based Compensation

v3.10.0.1
Stock Based Compensation
6 Months Ended
Sep. 30, 2018
Stock Based Compensation [Abstract]  
Stock Based Compensation

NOTE 13 – 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 provides for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of Aircom. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option. On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom 2014 Plan and agreed to issue options for an aggregate of 5,444,407 shares to Aircom’s stock option holders.

 

One-third of Aircom 2014 Plan stock option shares will be vested as of the first anniversary of the time the option shares are granted or the employee’s acceptance to serve the Company, and 1/36th of the shares will be vested each month thereafter. Option price is determined by the Board of Directors. The 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 the reservation of 5,000,000 shares of the Company’s common stock for issuance under the Aerkomm 2017 Plan. On June 23, 2017, the Board of Directors voted to increase the number of shares of the Company’s common stock reserved for issuance under the Aerkomm 2017 Plan to 10,000,000 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. Options granted under the Aerkomm 2017 Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the administrator at the time of grant of an option. On June 23, 2017, the Board of Directors agreed to issue options for an aggregate of 1,455,000 shares under the Aerkomm 2017 Plan to certain officers and directors of the Company.

 

The option agreements granted on June 23, 2017 are classified into three types of vesting schedule, which includes, 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 to issue options for an aggregate of 545,000 shares under the Aerkomm 2017 Plan to 11 of its employees. 1/3 of these 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 December 29, 2017, the Board of Directors approved to issue options for an aggregate of 60,000 shares under the Aerkomm 2017 Plan to three of the Company’s independent directors, 20,000 shares each. All of these options were vested immediately upon issuance.

 

On June 19, 2018, the Board of Directors approved to issue options for 160,000 and 150,000 shares under the Aerkomm 2017 Plan to two of the Company executives. One-fourth of the 160,000 shares subject to the option shall vest on May 1, 2019, 2020, 2021 and 2022, respectively. One-third of the 150,000 shares subject to the option shall vest on May 29, 2019, 2020 and 2021, respectively.

 

Option price is determined by the Board of Directors. 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 $402,876 and $343,835 for the three months ended September 30, 2018 and 2017, respectively, and $786,334 and $1,127,835 for the six months ended September 30, 2018 and 2017, 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 Aircom 2014 Plan and Aerkomm 2017 Plan.

 

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 Aircom 2014 Plan and Aerkomm 2017 Plan.

 

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 and 2017 under Aircom 2014 Plan and Aerkomm 2017 Plan as follows:

 

  Assumptions      
  Expected term     3 - 5 years  
  Expected volatility     40.11% - 59.94 %
  Expected dividends     0 %
  Risk-free interest rate     0.71% - 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 September 30, 2018 and March 31, 2018 was as follows:

 

     

Number of Shares

    Weighted Average Exercise Price Per Share     Weighted Average Fair Value Per Share  
  Options outstanding at April 1, 2017     5,444,407     $ 0.1617     $ 0.0508  
  Granted     -       -       -  
  Exercised     (19,681 )     0.0013       0.0004  
  Forfeited/Cancelled     (763,418 )     0.6550       0.2059  
  Options outstanding at March 31, 2018     4,661,307       0.0816       0.0256  
  Granted     -       -       -  
  Exercised     -       -       -  
  Forfeited/Cancelled     -       -       -  
  Options outstanding at September 30, 2018     4,661,307       0.0816       0.0256  
                           
  Options exercisable at March 31, 2018     3,407,933       0.0440       0.0138  
                           
  Options exercisable at September 30, 2018     3,956,932       0.0704       0.0221  

  

A summary of the status of nonvested shares under Aircom 2014 Plan as of September 30, 2018 and March 31, 2018 was as follows:

 

     

Number of Shares

   

Weighted
Average
Exercise Price

Per Share

 
  Options nonvested at April 1, 2017     2,843,138     $ 0.2870  
  Granted     -       -  
  Vested     (826,346 )     0.1043  
  Forfeited/Cancelled     (763,418 )     0.6550  
  Options nonvested at March 31, 2018     1,253,374       0.1838  
  Granted                
  Vested     (548,999 )     0.1150  
  Forfeited/Cancelled                
  Options nonvested at September 30, 2018     704,375       0.1340  

 

 

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 September 30, 2018 and March 31, 2018 were as follows:

 

     

Number of Shares

    Weighted Average Exercise Price Per Share    

Weighted

Average

Fair Value

Per Share

 
  Options outstanding at April 1, 2017     -     $ -     $ -  
  Granted     2,060,000       5.9154       3.2397  
  Exercised     (1,035,000 )     5.5000       3.2922  
  Forfeited/Cancelled     -       -       -  
  Options outstanding at March 31, 2018     1,025,000       6.3349       3.7904  
  Granted     330,000       4.1600       2.0416  
  Exercised     -       -       -  
  Forfeited/Cancelled     -       -       -  
  Options outstanding at September 30, 2018     1,355,000       5.8052       3.3645  
  Options exercisable at March 31, 2018     204,375       5.6468       3.5168  
  Options exercisable at September 30, 2018     549,514       6.0367       3.5622  

  

A summary of the status of nonvested shares under Aerkomm 2017 Plan as of September 30, 2018 and March 31, 2018 were as follows:

 

      Number of Shares     Weighted 
Average 
Exercise 
Price Per 
Share
 
  Options nonvested at April 1, 2017     -     $ -  
  Granted     2,060,000       5.9154  
  Vested     (444,375 )     5.5675  
  Forfeited/Cancelled     (795,000 )     5.5000  
  Options nonvested at March 31, 2018     820,625       6.5062  
  Granted     330,000       4.1600  
  Vested     (345,139 )     6.2676  
  Forfeited/Cancelled     -       -  
  Options nonvested at September 30, 2018     805,486       5.6473  

  

As of September 30, 2018 and March 31, 2018, there were approximately $2,397,000 and $1,756,000, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under Aircom 2014 Plan and Aerkomm 2017 Plan. 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.