Equity Incentive Plan

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Incentive Plan

Note 6 – Equity incentive plan

On December 19, 2019, the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. As of March 31, 2020, 7,500,000 shares of Common Stock (as defined below) were reserved under the 2019 Plan, of which 2,479,781 shares of Common Stock remained available for issuance.

On March 29, 2016, the Company adopted the 2016 Equity Incentive Plan (as amended, the “2016 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. The 2016 Plan was terminated on December 19, 2019 and all outstanding awards were cancelled.

Stock option activity

The following table summarizes the Company’s stock option activity under the 2019 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Balance at December 31, 2019		514,710		$	9.90		10.0	$	-
Granted		3,475,045			8.00
Forfeited		(19,536	)		8.00
Expired		-
Balance at March 31, 2020		3,970,219		$	8.25		9.7	$	-
Vested and expected to vest		3,970,219		$	8.25		9.7	$	-
Exercisable		-		$	-		-	$	-

(1) Aggregate intrinsic value represents the difference between the estimated fair value of the underlying Common Stock (as defined below) and the exercise price of outstanding, in-the-money options. There were no in-the-money options as of March 31, 2020 and December 31, 2019.

No stock options were exercised during the three months ended March 31, 2020 and 2019.

The following table summarizes additional information on stock option grants and vesting (in thousands):

	2016 Plan				2019 Plan
	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019		Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Total fair value of stock options granted	$	-	$	2,492	$	7,970	$	-
Total fair value of options vested		-		815		-		-

Time-based vesting stock options

Under the 2016 Plan, time-based vesting stock options vested over a five-year period, subject to graded vesting schedules, and expired ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by us was $0 and $37.16 during the three months ended March 31, 2020 and 2019, respectively.

Under the 2016 Plan, for the three months ended March 31, 2020 and 2019, the Company recognized $0.0 million and $0.9 million of stock-based compensation expense in connection with time-based stock options, respectively. As of March 31, 2020, there was no unrecognized stock-based compensation expense as the plan was terminated during 2019.

Under the 2019 Plan, time-based vesting stock options generally vest over a three-year period, are subject to graded vesting schedules, and expire ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by us was $2.24, during the three months ended March 31, 2020.

Under the 2019 Plan, for the three months ended March 31, 2020, the Company recognized $0.8 million of stock-based compensation expense in connection with time-based stock options. As of March 31, 2020, there was $8.1 million of unrecognized stock-based compensation expense related to unvested time-based stock options that is expected to be recognized over a weighted-average period of three years.

Performance-based vesting stock options

Performance-based vesting stock options generally vested upon the satisfaction of performance- and market-based criteria, based on the Principal Stockholders’ (as defined in the 2016 Plan) internal rate of return on their investment in the Company as measured following their sale of at least 70% of the Principal Stockholders total holdings in the Company, and expired ten years from the date of grant. The weighted-average fair value per share of performance-based vesting stock options granted by us was $0 and $37.16 during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, there were no stock options with performance-based vesting outstanding as the 2016 plan was terminated.

Award Valuation

The Company used valuation models to value both time and performance-based vesting stock options granted during the three months ended March 31, 2020 and 2019. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non- employees under both the 2019 Plan and the 2016 Plan:

	Three Months Ended March 31, 2020	Three Months Ended March 31, 2019
Expected volatility	37.63%	36.92%
Expected term (in years)	6.0	6.5
Dividend yield	0.00%	0.00%
Risk free interest rate	1.43%	2.42%

A discussion of management’s methodology for developing each of the assumptions used in the valuation model follows:

• Expected volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses an estimated volatility based on the historical and implied volatilities of comparable companies.

• Expected term – This is the period that the options granted are expected to remain unexercised. For options granted during the three months ended March 31, 2020 and 2019, the Company derived the expected life of the option based on the average midpoint between vesting and the contractual term as there is little exercise history.

• Dividend yield – The Company has never declared or paid dividends and have no plans to do so in the foreseeable future.

• Risk-free interest rate – This is the U.S. Treasury rate for securities with similar terms that most closely resembles the expected life of the option.

Stock award activity

During the three months ended March 31, 2020 the Company granted to certain non-employee directors 50,000 restricted stock units (“RSU”) in satisfaction of their annual retainer payments and are subject to a three-year vesting term. Accordingly, the Company will recognize the grant-date fair value of the stock awards, ratably over the vesting period. During the three months ended March 31, 2020, the Company recognized an immaterial amount as stock-based compensation expense related to this grant.

During the three months ended March 31, 2019, the Company granted to certain non-employee directors 5,556 stock awards. These stock awards were issued to non-employee directors in satisfaction of their annual retainer payments and are not subject to any vesting conditions, and thus became issued and outstanding shares on the grant date. Accordingly, the Company recognized the grant-date fair value of the stock awards of $0.5 million as stock-based compensation expense concurrent with the grant date of the awards during the three months ended March 31, 2019.

Stock-based compensation expense

Stock-based compensation expense is included in the Company’s Consolidated Statements of Comprehensive Loss within the following line items (in thousands):

	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Cost of revenues	$	355	$	231
General and administrative		230		619
Research and development		73		4
Sales and marketing		167		56
Total	$	825	$	910

Restricted stock units

The Company granted RSUs as an award of a share in the Company which is subject to certain vesting criteria.  The RSUs become eligible to begin vesting upon a liquidity event (as defined in the 2019 Plan). The amount and timing of the vesting of the RSUs is dependent on the timing of liquidity event as it relates to the Business Combination date of December 19, 2019.  

Should the liquidity event occur before the third anniversary of the Business Combination, the RSUs will vest as follows:

• If a liquidity event occurs before the first anniversary of the Business Combination, half of the RSUs will vest at the liquidity event and the remaining RSUs will vest in 3 equal instalments on each anniversary of the liquidity event over the next three years.

• If a liquidity event occurs after the first anniversary of the Business Combination, but before the second anniversary of the Business Combination, half of the RSUs will vest on the liquidity event, one-sixth will vest on the second anniversary of the Business Combination, and the remaining one-third will vest on the first anniversary of the liquidity event.

• If a liquidity event occurs after the second anniversary of the Business Combination, but before the third anniversary of the Business Combination, two-thirds of the RSUs will vest on the liquidity event and the remaining one-third will vest on the third anniversary of the Business Combination.

Should the liquidity event occur after the third anniversary of the Business Combination, all RSUs will vest immediately upon the liquidity event.

The Company granted 1,000,000 RSUs during the quarter ended March 31, 2020 and 1,000,000 are outstanding as of March 31, 2020. The Company determined the achievement of the liquidity event was not probable and therefore no expense was recorded during the three months ended March 31, 2020.