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STOCK-BASED COMPENSATION, WARRANTS AND SHARES RESERVED
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION, WARRANTS AND SHARES RESERVED
NOTE 19: STOCK-BASED COMPENSATION, WARRANTS AND SHARES RESERVED  

 

The Company accounts for stock-based compensation transactions in which the Company receives employee services in exchange for restricted stock units ("RSUs") or options to purchase common stock and the Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period. Stock-based compensation cost for RSUs is measured based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes option-pricing model. The Company accounts for forfeitures as they occur and will reduce compensation cost at the time of forfeiture.  Cash-settled Stock Appreciation Rights provide for the cash payment of the excess of the fair market value of the Company’s common stock price on the date of exercise over the grant price.  The fair value of the SARs is calculated during each reporting period and estimated using the Black-Scholes option pricing model. The SARs will vest over a period of three years and are accounted for as liability awards since they will be settled in cash.  Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock over the grant price is paid in cash and not in common stock.   

 

The Company has a 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, and other forms of equity compensation (collectively “stock awards”). In addition, the 2009 Plan provides for the grant of performance cash awards. The initial aggregate number of shares of common stock that may be issued initially pursuant to stock awards under the 2009 Plan was 411,765 shares. The number of shares of common stock reserved for issuance automatically increase on January 1 of each calendar year, from January 1, 2010 through and including January 1, 2019, by the lesser of (a) 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year or (b) a lesser number of shares of common stock determined by the Company’s board of directors before the start of a calendar year for which an increase applies. On November 3, 2014, the number of shares reserved for issuance under the 2009 Plan increased by 1,000,000. On May 25, 2016, upon the approval of the Company’s stockholders at the annual meeting of stockholders, the number of shares reserved for issuance increased by 4,500,000. At December 31, 2018, the aggregate balance of shares reserved for issuance under the 2009 plan was 11,335,847 shares. On January 1, 2019, pursuant to the provisions of the 2009 Plan, 2,364,568 shares were added to the shares reserved for issuance pursuant to awards under the 2009 Plan (see Note 21). The 2009 Plan terminated effective February 2019 and no new awards may be made under the 2009 Plan. Outstanding options awarded under the 2009 Plan will remain outstanding and continue to be governed by the provisions of the 2009 Plan. 

 

On January 30, 2019, the Company granted options to purchase 90,000 shares of common stock to the non-employee directors of the Company under the 2009 Plan with an exercise price of $3.09 per share. The options will vest over a period of one year. These options were valued using the Black-Scholes option pricing model, the expected volatility was approximately 56%, the term was six years, the dividend rate was 0.0 % and the risk-free interest rate was approximately 2.6%, which resulted in a calculated fair value of approximately $152,000.   

On January 30, 2019, the Company awarded Restricted Stock Units (“RSUs”) covering 2,349,350 shares of common stock to the officers and employees of the Company under the 2009 Plan; as of the date of grant, the market price of the common stock was $3.09 per share. These RSUs vest in equal amounts each quarter on the determined date over a period of three years from grant date provided that the recipient has continued to provide services to the Company, or earlier upon the occurrence of certain events including a Change in Control of the Company (as defined in the 2009 Plan), or earlier upon the recipient’s separation from service to the Company by reason of death or disability (as defined in the 2009 Plan). The calculated fair value of the RSUs was approximately $7,259,000. 

On January 30, 2019, the Company awarded RSUs covering 36,985 shares of common stock to an employee of the Company under the 2009 Plan; as of the date of grant, the market price of the common stock was $3.09 per share. These RSUs were vested in full at grant date. The calculated fair value of the RSUs was approximately $114,000 and expensed immediately.

During the quarter ended September 30, 2019, the Company granted SARs with respect to a total of 290,000 reference units of common stock to certain non-employee directors and non-executive employees of the Company, with initial reference prices ranging from $0.74 to $0.97 per SAR. The SARs will vest with respect to the one-sixth of the reference units on the date that is six months after the vesting commencement date and one thirty-sixth of the reference units thereafter on each subsequent monthly anniversary of the vesting commencement date, and is exercisable in full after the third anniversary of the vesting commencement date (and earlier upon a change in control of the Company).

During the year ended December 31, 2019, vested but unexercised options and unvested options to purchase 1,550,856 shares of common stock were canceled following the holders’ termination of employment.

 

The following summarizes the stock option activity for the years ended December 31, 2019 and 2018 below:

 

    2009
Equity
Incentive
Plan		     Weighted
Average
Exercise
Price		     Weighted
Average
Remaining
Contract
Life		  
Total Outstanding Vested and Expected to Vest as of December 31, 2017     6,726,594     $ 5.05       8.17 years  
                         
Options Granted     2,905,789       3.01       9.17 years  
Options Exercised     (4,166 )     3.35       —  
Options Canceled     (330,116 )     5.47       —  
                         
Total Outstanding Vested and Expected to Vest as of December 31, 2018     9,298,101     $ 4.40       7.92 years  
                         
Options Granted     90,000     $ 3.09       9.08 years  
Options Canceled     (1,550,856 )     4.26       —  
                         
Total Outstanding Vested and Expected to Vest as of December 31, 2019      7,837,245     $  4.40        6.01 years  
                         
Vested at December 31, 2019      6,917,685     $  4.57        5.74 years  

 

Stock based compensation expense for the years ended December 31, 2019 and 2018 was approximately $5,868,000 and $6,535,000, respectively. As of December 31, 2019, unrecognized compensation expense related to these stock options was approximately $1,478,000 and will be recorded as compensation expense over the next two years.

 

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) of 7,837,245 and 9,298,101 stock options outstanding at December 31, 2019 and 2018 was approximately $0 and $0, respectively. The aggregate intrinsic value of 6,917,685 and 6,130,337 stock options exercisable at December 31, 2019 and 2018 was approximately $0 and $0, respectively. 

 

Restricted Stock Units

 

The following table summarizes the RSUs outstanding at December 31, 2019 and December 31, 2018: 

​

December 31, 2019 

 

RSUs

 

Price  
Per Share at  
Grant Date

 

Date of Grant

Non-Employee Board of Directors

 

 

150,000

(1)

 

$

8.46

 

 

 

May 25, 2016

 

Company Executives

 

 

950,000

(1)

 

$

3.50

 

 

 

March 1, 2017

 

Company Executives

 

 

228,141

(2)

 

$

2.83

 

 

 

February 21, 2018

 

Company Executives and Employees

 

 

1,762,256

(3)

 

$

3.09

 

 

 

January 30, 2019

 

Total RSUs

 

 

3,090,397

 

 

 

 

 

 

 

 

 

 

(1) The RSUs will have cliff vesting after seven years of continuous service or upon change of control from date of grant or upon death or disability. 

(2) The RSUs vest ratably annually over a period of three years if the recipient has provided continuous service or upon change of control or upon death or disability. 

(3) The RSUs vest ratably quarterly over a period of three years if the recipient has provided continuous service or upon change of control or upon death or disability.

 

December 31, 2018 

 

RSUs

 

Price 
Per Share at 
Grant Date

 

Date of
Grant

Non-Employee Board of Directors

 

 

350,000

(1)

 

$

8.46

 

 

 

May 25, 2016

 

Company Executives

 

 

950,000

(1)

 

$

3.50

 

 

 

March 1, 2017

 

Company Executives

 

 

342,212

(2)

 

$

2.83

 

 

 

February 21, 2018

 

Total RSUs

 

 

1,642,212

 

 

 

 

 

 

 

 

 

 

(1) The RSUs will have cliff vesting after seven years of continuous service from date of grant or upon change of control or upon death or disability.

(2) The RSUs vest ratably annually over a period of three years if the recipient has provided continuous service or upon change of control or upon death or disability. 

Expense related to RSUs, included in the stock based compensation above, for the years ended December 31, 2019 and 2018 was approximately $2,597,000 and $1,174,000, respectively.  The recorded expense related to RSUs for the year ended December 31, 2019 was reduced by approximately $798,000, due to the termination of two non-employee members of the board of directors during the year ended December 31, 2019. The Company accounts for forfeiture as they occur and reduces the compensation cost at the time of forfeiture.

Cash-settled Stock Appreciation Rights

 

The following table summarizes cash-settled SARS outstanding at December 31, 2019:

 

 

 

Number of Units

 

Weighted-Average Exercise Price

 

Weighted-Average Remaining Contractual Term (Years)

Outstanding as of December 31, 2018

 

 

—

 

 

$

0.00

 

 

 

 

 

Granted

 

 

290,000

 

 

 

0.82

 

 

 

6.7 Years

 

Forfeited

 

 

—

 

 

 

0.00

 

 

 

 

 

Exercised

 

 

—

 

 

 

0.00

 

 

 

 

 

Outstanding at December 31, 2019

 

 

290,000

 

 

$

0.82

 

 

 

6.7 Years

 

 

The Company had a liability, which is included in accrued other expenses in the consolidated balance sheets, associated with its SARs of approximately $18,000 and $0 at December 31, 2019 and December 31, 2018, respectively.  These SARs were valued using the Black-Scholes option pricing model, the expected volatility was approximately 57%, the term was seven years, the dividend rate was 0.0% and the risk-free interest rate was approximately 1.8%, which resulted in a calculated fair value of approximately $103,000.  The fair value of these liability awards will be remeasured at each reporting period until the date of settlement. Increases and decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards. For the years ended December 31, 2019, the Company recognized compensation expense of $18,000, associated with these awards, as compared to compensation expense of $0 for the year ended December 31, 2018.  

The following table summarizes warrants outstanding at December 31, 2019 and December 31, 2018:

 

December 31, 2019 

 

Warrant 
Shares

 

 

Exercise Price 
Per Share

 

 

Date 
Issued

 

Expiration 
Date

Old Adamis Warrants

 

 

58,824

 

 

$

8.50

 

 

November 15, 2007

 

November 15, 2021

Preferred Stock Series A-1 Warrants

 

 

1,183,432

 

 

$

4.10

 

 

January 26, 2016

 

January 26, 2021

Preferred Stock Series A-2 Warrants

 

 

192,414

 

 

$

2.90

 

 

July 11, 2016

 

July 11, 2021

2016 Warrants

 

 

700,000

 

 

$

2.98

 

 

August 3, 2016

 

August 3, 2021

2019 Warrants

 

 

13,800,000

 

 

$

1.15

 

 

August 5, 2019

 

August 5, 2024

Total Warrants

 

 

15,934,670

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018    Warrant
Shares		   Exercise Price
Per Share		   Date Issued   Expiration Date
Old Adamis Warrants     58,824     $ 8.50     November 15, 2007   November 15, 2019
Underwriter Warrants     4,217     $ 7.44     January 16, 2014   January 16, 2019
Preferred Stock Series A-1 Warrants     1,183,432     $ 4.10     January 26, 2016   January 26, 2021
Preferred Stock Series A-2 Warrants     192,414     $ 2.90     July 11, 2016   July 11, 2021
2016 Common Stock, Private Placement     700,000     $ 2.98     August 3, 2016   August 3, 2021
Total Warrants     2,138,887                  

     

Shares Reserved

At December 31, 2019, the Company has reserved shares of common stock for issuance upon exercise of outstanding options and warrants, and vesting of RSUs, as follows:

 

Warrants     15,934,670  
RSU     3,090,397  
2009 Equity Incentive Plan     7,837,245  
Total Shares Reserved     26,862,312