Quarterly report pursuant to Section 13 or 15(d)

Stock Based Compensation

v3.8.0.1
Stock Based Compensation
9 Months Ended
Sep. 30, 2017
Stock Based Compensation [Abstract]  
Stock Based Compensation
NOTE 12 – Stock Based Compensation

 

In March 2014, Aircom’s Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”), which provided 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 the total 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 has been adopted 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” or, the “Plan”) and the reservation of 5,000,000 shares of the Company’s common stock for issuance under the 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 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 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 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 Aerkomm.

 

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. Option price is determined by the Board of Directors. The 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 Plan has not yet been approved by Aerkomm’s stockholders.

 

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 $343,835 and $22,600 for the three-month periods ended September 30, 2017 and 2016, respectively, and $1,136,835 and $22,600 for the nine-month periods ended September 30, 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, the Company used the calculated value method, which utilizes the historical volatility of a publicly listed company in the same industry as the expected volatility for the Company, in calculating 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 2015 and 2016 under Aircom 2014 Plan and Aerkomm 2017 Plan as follows:

 

  Assumptions      
  Expected term     3 - 5 years  
  Expected volatility     40.11 - 59.18 %
  Expected dividends     0 %
  Risk-free interest rate     0.71 - 2.30 %
  Forfeiture rate     0 - 5 %

 

Aircom 2014 Plan

 

A summary of the number of shares, weighted average exercise price and estimated fair value of options granted under the Aircom 2014 Plan as of September 30, 2017 and December 31, 2016 was as follows:

 

      Number of Shares     Weighted Average Exercise Price Per Share     Weighted Average Fair Value Per Share  
  Options outstanding at January 1, 2016     4,139,241     $ 0.0013     $ 0.0004  
  Granted     1,305,166       0.6704       0.2108  
  Exercised     -       -       -  
  Forfeited/Cancelled     -       -       -  
  Options outstanding at December 31, 2016     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 September 30, 2017     4,661,307       0.0816       0.0256  

 

A summary of the status of nonvested shares under Aircom 2014 Plan as of September 30, 2017 and December 31, 2016 was as follows:

 

      Number of Shares     Weighted Average Fair Value Per Share  
  Options nonvested at January 1, 2016     4,139,241     $ 0.0004  
  Granted     1,305,166       0.2108  
  Vested     (2,066,858 )     0.0004  
  Forfeited/Cancelled     -       -  
  Options nonvested at December 31, 2016     3,377,549       0.0817  
  Granted     -       -  
  Vested     (920,522 )     0.0537  
  Forfeited/Cancelled     (763,418 )     0.2059  
  Options nonvested at September 30, 2017     1,693,609       0.0409  

 

Aerkomm 2017 Plan

 

A summary of the number of shares, weighted average exercise price and estimated fair value of options Aerkomm 2017 Plan as of September 30, 2017 was as follows:

 

      Number of Shares     Weighted Average Exercise Price Per Share     Weighted Average Fair Value Per Share  
  Options outstanding at January 1, 2017     -     $ -     $ -  
  Granted     2,000,000       5.9129       3.5246  
  Exercised     -       -       -  
  Forfeited/Cancelled     -       -       -  
  Options outstanding at September 30, 2017     2,000,000     $ 5.9129     $ 3.5246  

A summary of the status of nonvested shares under Aerkomm 2017 Plan as of September 30, 2017 was as follows:

 

      Number of Shares     Weighted Average Fair Value Per Share  
  Options nonvested at January 1, 2017     -          
  Granted     2,000,000     $ 3.5246  
  Vested     (303,125 )   $ 3.2922  
  Forfeited/Cancelled     -       -  
  Options nonvested at September 30, 2017     1,696,875     $ 3.5661  

 

As of September 30, 2017 and December 31, 2016, there were approximately $3,630,000 and $94,000, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Aircom 2014 Plan and the 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.