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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

21. Stock–Based Compensation

 

Common Stock Awards

 

2016 Plan – On December 19, 2016, the Board adopted the 2016 Stock Incentive Plan (the “2016 Plan”). The purpose of the 2016 Plan is to advance the interests of the Company and its stockholders by enabling the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the Company’s achievement of its economic objectives. The 2016 Plan allows the Company to grant statutory and non-statutory common stock options, and restricted stock awards (collectively the “common stock awards”) to acquire shares of the Company’s common stock to the Company’s employees, directors and consultants. Shares subject to an award that lapse, expire, are forfeited or for any reason are terminated unexercised or unvested will automatically again become available for issuance under the 2016 Plan. Stock awards issued under the 2016 Plan may have a term of up to ten years and may have variable vesting provisions consisting of time-based and performance-based.

 

On March 28, 2018, the Board approved an increase in the number of shares of the Company’s common stock reserved for grant pursuant to the 2016 Plan from 3,000,000 shares to 5,000,000 shares. On August 23, 2018, the Board increased the authorized number of shares of common stock under the 2016 Plan from 5,000,000 shares to 10,000,000 shares. The Company’s stockholders approved the increase in the number of shares authorized under the 2016 Plan on April 3, 2020. The 2016 Plan is administered by the Board, and there were no grants prior to the formation of the 2016 Plan.

 

The estimated fair value of the common stock awards is recognized as compensation expense over the vesting period of the award.

 

The fair value of common stock awards granted during the year ended December 31, 2018 were calculated using the Black-Scholes option pricing model utilizing the following assumptions:

 

Risk-free interest rate     2.27% – 3.05%  
Expected dividend yield     0.00%  
Expected volatility     108.34% – 139.36%  
Expected life     3.0 – 6.0 years  

 

A summary of the common stock award activity during the years ended December 31, 2019 and 2018 is as follows:

 

                Weighted  
                Average  
          Weighted     Remaining  
    Number     Average     Contractual  
    of     Exercise     Life  
    Shares     Price     (in Years)  
Common stock awards outstanding at January 1, 2018     2,176,637     $ 1.25       9.25  
Granted     8,187,750       0.84          
Exercised     (125,000 )     0.17          
Forfeited     (732,353 )     1.41          
Expired     (101,493 )     1.49          
Common stock awards outstanding at December 31, 2018     9,405,541       0.61       9.30  
Exercised     (25,000 )     0.17          
Forfeited     (1,197,776 )     0.73          
Expired     (118,204 )     1.09          
Common stock awards outstanding at December 31, 2019     8,064,561       0.62       8.34  
Common stock awards exercisable at December 31, 2019     4,970,584       1.02       8.25  
Common stock awards not vested at December 31, 2019     3,093,977                  
Common stock awards available for future grants at December 31, 2019     1,935,439                  

 

The aggregate grant date fair value of common stock awards granted during the year ended December 31, 2018 was $5,566,385. The aggregate intrinsic value as of December 31, 2019 and 2018 was approximately $1,452,000 and none, respectively.

 

Outstanding options for 3,093,977 shares of the Company’s common stock had not vested at December 31, 2019.

 

As of December 31, 2019 and 2018, there was $1,697,036 and $4,338,362, respectively, of total unrecognized compensation expense related to common stock awards granted, which is expected to be recognized over a weighted-average period of approximately 1.34 and 2.19 years, respectively.

 

The intrinsic value of exercisable but unexercised in-the-money common stock options as of December 31, 2019 was approximately $631,000 based on a fair market value of the Company’s common stock of $0.80 per share on December 31, 2019.

 

In conjunction with the recapitalization, the Company assumed 175,000 fully vested common stock options having an exercise price of $0.17 per share and an expiration date of May 15, 2019. Of those options, 125,000 were exercised in June 2018 on a cashless basis resulting in the issuance of 106,154 net shares of common stock.

 

The exercise prices of common stock awards outstanding and exercisable are as follows as of December 31, 2019:

 

Exercise   Outstanding     Exercisable  
Price   (Shares)     (Shares)  
Under $1.00     5,048,750       2,539,496  
$1.01 to $1.25     1,553,333       1,154,687  
$1.26 to $1.50     28,309       18,448  
$1.51 to $1.75     345,000       239,759  
$1.76 to $2.00     924,169       904,444  
$2.01 to $2.25     135,000       83,750  
$2.26 to $2.50     30,000       30,000  
      8,064,561       4,970,584  

 

Common Equity Awards

 

2019 Plan – On April 4, 2019, the Board adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The purpose of the 2019 Plan is to retain the services of our directors, employees, and consultants and align the interests of these individuals with the interests of our stockholders through awards of stock options, restricted stock awards, unrestricted stock awards, and stock appreciation rights (collectively the “common equity awards”). Certain common equity awards require the achievement of certain price targets of the Company’s common stock. Shares subject to a common equity award that lapse, expire, are forfeited or for any reason are terminated unexercised or unvested will automatically again become available for issuance under the 2019 Plan. Common stock options issued under the 2019 Plan may have a term of up to ten years and may have variable vesting provisions consisting of time-based, performance-based, or market-based.

 

The Company’s stockholders approved the 2019 Plan and the maximum number of shares authorized of 85,000,000 under the 2019 Plan on April 3, 2020. Initially, the Company did not have sufficient authorized but unissued shares of common stock to allow for the exercise of the stock options granted under the 2019 Plan; accordingly, as of December 31, 2019, any equity award grants under the 2019 Plan were considered as unfunded and were not exercisable until sufficient shares of common stock were authorized (further details subsequent to the date of these consolidated financial statements are provided under the heading 2019 Equity Incentive Plan in Note 28).

 

The estimated fair value of the common equity awards is recognized as compensation expense over the vesting period of the award.

 

The fair value of common equity awards granted during the year ended December 31, 2019 was calculated using the Black-Scholes option pricing model for the time-based and performance-based awards by an independent appraisal firm under the Probability Weighted Scenarios utilizing the following assumptions:

 

    Up-list     No Up-list  
Risk-free interest rate     1.51% – 2.59%       1.51% – 2.59%  
Expected dividend yield     0.00%       0.00%  
Expected volatility     69.00% – 95.00%       119.00% – 149.00%  
Expected life     3.0 – 6.0 years       3.0 – 6.0 years  

 

The fair value of common equity awards granted during the year ended December 31, 2019 were calculated using the Monte Carlo model for the market-based awards by an independent appraisal firm under the Probability Weighted Scenarios utilizing the following assumptions:

 

    Up-list     No Up-list  
Risk-free interest rate     2.20% – 2.70%       2.16% – 2.71%  
Expected dividend yield     0.00%       0.00%  
Expected volatility     140.00% – 146.00%       110.00%  
Expected life     10.0 years       10.0 years  

 

A summary of the common equity award activity during the year ended December 31, 2019 is as follows:

 

                Weighted  
                Average  
          Weighted     Remaining  
    Number     Average     Contractual  
    of     Exercise     Life  
    Shares     Price     (in Years)  
Common equity awards outstanding at January 1, 2019     -     $ -       -  
Granted     68,180,863       0.53          
Forfeited     (3,167,218 )     0.53          
Common equity awards outstanding at December 31, 2019     65,013,645       0.53       9.43  
Common equity awards vested at December 31, 2019     55,556                  
Common equity awards exercisable at December 31, 2019     -                  
Common equity awards not vested at December 31, 2019     64,958,089                  
Common equity awards available for future grants at December 31, 2019     19,986,355                  

 

The aggregate grant date fair value for the common equity awards granted during the year ended December 31, 2019 was $30,864,185. The aggregate intrinsic value as of December 31, 2019 was approximately $17,554,000.

 

Outstanding options for 64,958,089 shares of the Company’s common stock had not vested as of December 31, 2019.

 

As of December 31, 2019, there was $20,140,032 of total unrecognized compensation expense related to the common equity awards granted, which is expected to be recognized over a weighted-average period of approximately 2.54 years.

 

The intrinsic value of exercisable but unexercised in-the-money common stock options as of December 31, 2019 was approximately $6,000 based on a fair market value of the Company’s common stock of $0.80 per share on December 31, 2019.

 

The exercise prices for the common equity awards outstanding, vested and exercisable are as follows at December 31, 2019:

 

Exercise   Outstanding     Vested     Exercisable  
Price   (Shares)     (Shares)     (Shares)  
No exercise price     250,000       -       -  
Under $1.00     64,763,645       55,566       -  
      65,013,645       55,556       -  

 

Outside Options

 

The Company granted stock options outside the 2016 Plan and 2019 Plan during the year ended December 31, 2019 to certain officers, directors and employees of the Company as approved by the Board and administered by the Company (the “outside options”). The stock options were to acquire shares of the Company’s common stock and were subject to: (1) time-based vesting; (2) certain performance-based targets; and (3) certain performance achievements. Options to purchase common stock issued pursuant to the Outside Plan may have a term of up to ten years. The Company did not have sufficient authorized but unissued shares of common stock to allow for the exercise of these common stock options granted; accordingly, any common stock options granted were considered unfunded and were not exercisable until sufficient common shares were authorized (further details subsequent to the date of these consolidated financial statements are provided under the heading Sequencing Policy in Note 28).

 

The fair value for the outside options granted during the year ended December 31, 2018 were calculated using the Black-Scholes option-pricing model utilizing the following assumptions:

 

Risk-free interest rate     2.79% – 3.09%  
Expected dividend yield     0.00%  
Expected volatility     113.49% – 116.86%  
Expected life     6.0 years  

 

The fair value for the outside options granted during the year ended December 31, 2019 were calculated using the Black-Scholes option pricing model for the time-based and performance-based awards by an independent appraisal firm under the Probability Weighted Scenarios utilizing the following assumptions:

 

    Up-list     No Up-list  
Risk-free interest rate     2.49% – 2.57%       2.49% – 2.57%  
Expected dividend yield     0.00%       0.00%  
Expected volatility     74.00% – 95.00%       122.00% – 142.00%  
Expected life     3.0 – 5.8 years       3.0 – 5.8 years  

 

A summary of outside option activity during the years ended December 31, 2019 and 2018 is as follows:

 

                Weighted  
                Average  
          Weighted     Remaining  
    Number     Average     Contractual  
    of     Exercise     Life  
    Shares     Price     (in Years)  
Outside options outstanding at January 1, 2018     -     $ -          
Granted     2,414,000       0.36          
Outside options outstanding at December 31, 2018     2,414,000       0.36       9.94  
Granted     1,500,000       0.57       9.94  
Exercised     (2,000 )     0.35          
Forfeited     (180,000 )     0.35          
Expired     (7,333 )     0.35          
Outside options outstanding at December 31, 2019     3,724,667       0.21       9.04  
Outside options vested at December 31, 2019     1,203,667       0.89       9.02  
Stock options exercisable at December 31, 2019     -                  
Stock options not vested at December 31, 2019     2,521,000                  

 

The aggregate grant date fair value of outside options granted during the years ended December 31, 2019 and 2018 was $675,000 and $755,884, respectively. The aggregate intrinsic value as of December 31, 2019 and 2018 was approximately $2,198,000 and $278,000, respectively.

 

Outstanding options for 2,521,000 shares of the Company’s common stock had not vested as of December 31, 2019.

 

As of December 31, 2019 and 2018, there was $958,315 and $733,875 of total unrecognized compensation expense related to common stock options granted, which is expected to be recognized over a weighted-average period of approximately 2.07 and 2.92 years, respectively.

 

The intrinsic value of exercisable but unexercised in-the-money common stock options as of December 31, 2019 was approximately $445,000 based on a fair market value of the Company’s common stock of $0.80 per share on December 31, 2019.

 

The exercise prices of outside options outstanding, vested and exercisable are as follows as of December 31, 2019:

 

Exercise   Outstanding     Vested     Exercisable  
Price   (Shares)     (Shares)     (Shares)  
Under $1.00     3,724,667       1,203,667       -  
                         

 

Channel Partner Warrants

 

On December 19, 2016, as amended on August 23, 2017, and August 23, 2018, the Board approved the Channel Partner Warrant Program (the “Channel Partner Warrant Program”) to be administered by management that authorized the Company to grant Channel Partner Warrants. As of December 31, 2019, Chanel Partner Warrants to purchase up to 2,000,000 shares of common stock issued pursuant to the Channel Partner Warrant Program were reserved for grant.

 

The Channel Partner Warrants had certain performance conditions. Pursuant to the terms of the Channel Partner Warrants, the Company would notify the respective Channel Partner of the number of shares earned, with one-third of the earned shares vesting on the notice date, one-third of the earned shares vesting on the first anniversary of the notice date, and the remaining one-third of the earned shares vesting on the second anniversary of the notice date. The Channel Partner Warrants had a term of five years from issuance and could also be exercised on a cashless basis. Performance conditions are generally based on the average of number of unique visitors on the channel operation by the Channel Partner generated during the six-month period from the launch of the Channel Partner’s operations on the Company’s technology platform or the revenue generated during the period from the issuance date through a specified end date.

 

The Channel Partner Warrants are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the Channel Partner Warrants vest, they are valued on each vesting date. Channel Partner Warrants with performance conditions that do not have sufficiently large disincentive for non-performance are measured at fair value that is not fixed until performance is complete. The estimated fair value of the equity-based awards is recognized as an expense at the vesting date of the award. The fair value of the Channel Partner Warrant is estimated at the vesting date as calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires various highly judgmental assumptions including expected volatility and warrant life.

 

The fair value of Channel Partner Warrants issued during the year ended December 31, 2018 were calculated using the Black-Scholes option-pricing model utilizing the following assumptions:

 

Risk-free interest rate     2.54% – 2.89%  
Expected dividend yield     0.00%  
Expected volatility     95.73% – 119.45%  
Expected life     3.0 – 5.0 years  

 

A summary of the Channel Partner Warrants activity during the years ended December 31, 2019 and 2018 is as follows:

 

                Weighted  
                Average  
          Weighted     Remaining  
    Number     Average     Contractual  
    of     Exercise     Life  
    Shares     Price     (in Years)  
Channel Partner Warrants outstanding at January 1, 2018     1,303,832     $ 1.48       4.35  
Issued     295,000       1.74          
Forfeited     (581,692 )     1.47          
Channel Partner Warrants outstanding at December 31, 2018     1,017,140       1.47       3.26  
Forfeited     (77,599 )     1.62          
Channel Partner Warrants outstanding at December 31, 2019     939,541       1.46       2.57  
Channel Partner Warrants exercisable at December 31, 2019     613,041       1.50       2.63  
Channel Partner Warrants available for future grants at December 31, 2019     1,060,459                  

 

The exercise prices range from $1.32 to $2.25 per share. There was no intrinsic value of exercisable but unexercised in-the-money Channel Partner Warrants since the fair market value of $0.48 per share of the Company’s common stock was lower than the exercise prices on December 31, 2019.

 

Restricted Stock Units

 

On May 31, 2019, the Company issued 2,399,997 restricted stock units to HubPages employees in settlement of the true-up provisions of the restricted stock awards issued at the time of the HubPages Merger. Each restricted stock unit represents the right to receive a number of the shares of the Company’s common stock pursuant to a grant agreement, subject to certain terms and conditions, and will be credited to a separate account maintained by the Company. All amounts credited to the separate account will be part of the general assets of the Company. The restricted stock units will vest in accordance with the grant agreement in six equal installments at four-month intervals on the first of each month, starting on June 1, 2019, with the final vesting date on February 1, 2021. In addition to the vesting schedule as aforementioned, the restricted stock units would not vest until the Company increased its authorized shares of the Company’s common stock. Each restricted stock unit granted and credited to the separate account for the employee will be issued by the Company upon the authorized shares of the Company’s common stock increased (further details subsequent to the date of these consolidated financial statements are provided under the heading Restricted Stock and Sequencing Policy in Note 28). Further, unless otherwise specified in an employee’s grant agreement, vesting will cease upon the termination of the employees continuous service.

 

The fair value of a restricted stock award is determined based on the number of shares granted and the quoted price of the Company’s common stock on the date issued during the year ended December 31, 2019.

 

A summary of the restricted stock unit activity during the year ended December 31, 2019 is as follows:

 

          Weighted Average  
    Number of Shares     Grant-Date  
    Unvested     Vested     Fair Value  
Restricted stock units outstanding at January 1, 2019     -       -     $ -  
Issued     2,399,997       -       0.45  
Restricted stock units outstanding at December 31, 2019     2,399,997       -       0.45  
Restricted stock units credited to a separate account at December 31, 2019     -       -          

 

As of December 31, 2019, there was $559,412 of total unrecognized compensation expense related to the restricted stock unit which is expected to be recognized over a weighted-average period of approximately 1.09 years.

 

ABG Warrants

 

In connection with the Sports Illustrated Licensing Agreement and issuance of the ABG Warrants to purchase up to 21,989,844 shares of the Company’s common stock, the Company recorded the issuance of the warrants as stock-based compensation in accordance with the adoption of ASU 2018-07 with the fair value of the warrants measured at the time of grant and expensed over the requisite service period.

 

The fair value of the ABG Warrants granted during the year ended December 31, 2019 were calculated using the Monte Carlo model by an independent appraisal firm under the Probability Weighted Scenarios utilizing the following assumptions:

 

    Up-list     No Up-list  
Risk-free interest rate     2.00% – 2.10%       2.00% – 2.10%  
Expected dividend yield     0.00%       0.00%  
Expected volatility     51.00% – 52.00%       121.00% – 123.00%  
Expected life     6.0 – 7.3 years       6.2 – 7.3 years  

 

A summary of the ABG Warrant activity during the year ended December 31, 2019 is as follows:

 

                Weighted  
                Average  
          Weighted     Remaining  
    Number     Average     Contractual  
    of     Exercise     Life  
    Shares     Price     (in Years)  
ABG Warrants outstanding at January 1, 2019     -     $ -          
Issued     21,989,844       0.55          
ABG Warrants outstanding at December 31, 2019     21,989,844       0.55       9.46  
ABG Warrants exercisable at December 31, 2019     -                  
ABG Warrants not vested at December 31, 2019     21,989,844                  

 

The aggregate issue date fair value of the ABG Warrants issued during the year ended December 31, 2019 was $5,458,979.

 

As of December 31, 2019, there was $4,663,176 of total unrecognized compensation expense related to the ABG Warrants granted, which is expected to be recognized over a weighted-average period of approximately 3.38 years.

 

Stock–based compensation and equity-based expense charged to operations or capitalized during the years ended December 31, 2019 and 2018 are summarized as follows:

 

    Year Ended December 31, 2019  
    Restricted     Common     Common           Channel              
    Stock     Stock     Equity     Outside     Partner     ABG        
    Awards     Awards     Awards     Options     Warrants     Warrants     Totals  
Cost of revenue   $ 122,192     $ 44,520     $ 774,632     $ 1,580     $ 50,828     $ -     $ 993,752  
Selling and marketing     34,393       100,388       455,280       242,399       -       -       832,460  
General and administrative     2,541,468       1,660,607       3,383,338       157,359       -       795,803       8,538,575  
Total costs charged to operations     2,698,053       1,805,515       4,613,250       401,338       50,828       795,803       10,364,787  
Capitalized platform development     535,004       175,837       590,618       5,931       -       -       1,307,390  
Total stock-based compensation   $ 3,233,057       1,981,352     $ 5,203,868     $ 407,269     $ 50,828     $ 795,803     $ 11,672,177  

 

    Year Ended December 31, 2018  
    Restricted     Common     Common           Channel              
    Stock     Stock     Equity     Outside     Partner     ABG        
    Awards     Awards     Awards     Options     Warrants     Warrants     Totals  
Cost of revenue   $ 6,745     $ -     $ -     $ -     $ 152,460     $ -     $ 159,205  
Selling and marketing     607       67,062       8,782       -       -       -       76,451  
General and administrative     2,973,051       1,130,326       1,791       -       -       -       4,105,168  
Total costs charged to operations     2,980,403       1,197,388       10,573       -       152,460       -       4,340,824  
Capitalized platform development     1,639,038       211,346       -       -       -       -       1,850,384  
Total stock-based compensation   $ 4,619,441       1,408,734     $ 10,573     $ -     $ 152,460     $ -     $ 6,191,208