Annual report pursuant to Section 13 and 15(d)

Stockholders??? Equity

v3.21.1
Stockholders’ Equity
12 Months Ended
Dec. 31, 2020
Stockholders' Equity Note [Abstract]  
Stockholders’ Equity

Note 16 – Stockholders’ Equity

 

Amendment to Company Charter

 

On July 27, 2020, the Company filed an Amendment to its Second Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of shares of common stock currently authorized by the Certificate by 10,000,000 shares, from 65,000,000 shares to 75,000,000 shares.

 

On November 4, 2020, the Company filed with the Delaware Secretary of State an amendment to its Second Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of its common stock from 75,000,000 shares to 100,000,000 shares.

 

Put Option Agreement and Exercise

 

On February 25, 2020 (the “Effective Date”), the Company entered into a Put Option Agreement (the “Agreement”) with the Chairman of the Company’s Board of Director (the “Chairman”), pursuant to which the Company has an option in its discretion, to sell shares of its common stock (the “Option Shares”) to the Chairman for aggregate gross proceeds of up to $2.0 million, at a purchase price of $1.963 per Option Share, subject to the following limitations:

 

a) The total number of shares that may be issued under the Agreement will be limited to 19.99% of the Company’s outstanding shares on the date the Agreement is signed (the “Exchange Cap”), unless stockholder approval is obtained to issue shares in excess of the Exchange Cap;

 

b) The Company may not issue, and the Chairman may not purchase Option Shares to the extent that such issuance would result in the Chairman and his affiliates beneficially owning more than 19.99% of the then issued and outstanding shares of the Company’s common stock unless (i) such ownership would not be the largest ownership position in the Company, or (ii) stockholder approval is obtained for ownership in excess of 19.99%;

 

c) The Company may not issue, and the Chairman may not purchase any Option Shares if such issuance and purchase would be considered equity compensation under the rules of The Nasdaq Stock Market unless stockholder approval is obtained for such issuance; and

 

d) Option Shares are subject to a six-month lock-up period whereby they cannot be sold or transferred.

 

On March 9, 2020, the Company provided notice to the Chairman that it had elected to exercise the Put Option to sell 1,018,848 Option Shares at a purchase price of $1.963 per share for total proceeds of $2,000,000. The Option Shares were issued on May 15, 2020. On September 29, 2020, the Company received proceeds of $21,875 from the Chairman, representing the disgorgement of short swing profits realized from the sale of shares.

 

Equity Purchase Option

 

Prior to the Closing Date, BRAC sold an option to purchase up to 600,000 units, exercisable at $11.50 per Unit, in connection with BRAC’s initial public offering (the “Equity Purchase Option”). Each Unit consisted of one and one-tenth shares of common stock and a warrant to purchase one share of common stock at $11.50 per share. Effective upon the closing of the Merger, the units converted by their terms into the shares and warrants, and the option now represents the ability to buy such securities directly (and not units). The Equity Purchase Option may be exercised on either a cash or a cashless basis, at the holder’s option, and expires on October 4, 2022. These previously issued BRAC Shares and Warrant Purchase Options are deemed to be issued in connection with the Merger, as a result of the reverse recapitalization.

 

A summary of the Equity Purchase Option activity during the year ended December 31, 2020 is presented below: 

 

    Number of     Weighted     Weighted        
    Equity     Average     Average        
    Purchase     Exercise     Remaining     Intrinsic  
    Options     Price     Term (Yrs)     Value  
Outstanding, January 1, 2020     600,000     $ 11.50                  
Granted    
-
                         
Exercised    
-
                         
Expired    
-
                         
Forfeited    
-
                         
Outstanding, December 31, 2020     600,000     $ 11.50       1.8     $
-
 
                                 
Exercisable, December 31, 2020     600,000     $ 11.50       1.8     $
-
 

 

Common Stock

 

On January 14, 2020, the Company issued 758,725 shares of its common stock to an investor in exchange for $5,000,000 (the “Purchase Price”) pursuant the Brookfield Agreement (see Note 14 – Commitments and Contingencies, Brookfield Partnership).

 

On August 6, 2020, the Company issued 50,000 shares of common stock to its Chief Financial Officer. The shares were immediately vested with no restrictions and had a grant date value of $109,000. On September 24, 2020, the Company issued 14,286 shares of common stock to the Chairman of the Board of Directors. The common stock was immediately vested with no restrictions and had grant date value of $20,000.

 

On August 7, 2020, the Company issued 217,999 shares of common stock with a grant date value of $474,000 to certain officers and employees of the Company, in satisfaction of bonus obligations incurred in previous years, which were included in accrued expenses as of December 31, 2019.

 

On April 29, 2020, the Company issued 3,392,857 shares of its common stock valued at $9,998,845 upon the conversion of $5,000,000 debt (see Note 10 – Convertible Debt and Convertible Debt, Related Party, Convertible Bridge Notes and Convertible Bridge Notes, Related Party).

 

During the year ended December 31, 2020, the Company issued 9,678,840 shares of its common stock valued at $13,218,091 for the redemption of $10,461,191 of debt and accrued interest (see Note 10 – Convertible Debt and Convertible Debt, Related Party, Senior Secured Convertible Notes).

 

Equity Incentive Plan

 

On August 9, 2019, the Company’s Equity Incentive Plan (the “Incentive Plan”) was approved by the Company’s stockholders. The Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors to do so. The effective date of the Incentive Plan was December 19, 2018. The Incentive Plan provides the grant of incentive stock options (“ISOs”), nonstatutory stock options, stock appreciation rights, restricted common stock awards, restricted common stock unit awards, as well as other stock-based awards that are deemed to be consistent with the purposes of the plan. There are 3,463,305 shares of common stock reserved under the Incentive Plan, of which 471,486 shares remain available to be issued as of December 31, 2020.

Stock Options

 

A summary of the option activity during the year ended December 31, 2020 is presented below:

 

          Weighted     Weighted        
          Average     Average        
    Number of     Exercise     Remaining     Intrinsic  
    Options     Price     Term (Yrs)     Value  
Outstanding, January 1, 2020     2,480,000     $ 4.34       9.86     $
           -
 
Granted     200,000       2.15                  
Exercised    
-
     
-
                 
Expired    
-
     
-
                 
Forfeited     (250,000 )     4.47                  
Outstanding, December 31, 2020     2,430,000     $ 4.15       8.92     $
-
 
                                 
Exercisable, December 31, 2020     557,500     $ 4.33       2.84     $
-
 

 

Options outstanding and exercisable as of December 31, 2020 are as follows:

 

Options Outstanding     Options Exercisable  
      Outstanding     Weighted Average     Exercisable  
Exercise     Number of     Remaining Life     Number of  
Price     Options     In Years     Options  
$ 2.11       80,000      
-
     
-
 
$ 2.17       120,000      
-
     
-
 
$ 4.09       1,890,000       2.89       472,500  
$ 5.66       340,000       2.56       85,000  
          2,430,000       2.84       557,500  

Effective June 30, 2020, two of the Company’s directors (the “Resigning Directors”) resigned from their positions as members of the Company’s Board of Directors. Options for the purchase of an aggregate of 20,000 shares of common stock, with a grant date value of $43,356, held by the Resigning Directors were modified such that the options will be fully vested on September 20, 2020 and will be exercisable through September 20, 2029. The Company recorded $8,386 of incremental stock-based compensation expense as a result of the option modification for the year ended December 31, 2020.

 

On August 7, 2020, the Company’s Board approved, in connection with its general counsel’s transition to a part-time employee, the Company’s waiver of any forfeiture of non-vested options in connection with such transition and termination of employment scheduled for February 2021, such that the options for the purchase of 170,000 shares of common stock (grant date value of $266,733) held by the Company’s general counsel will continue to vest according to their original vesting schedules and will expire ninety days after November 21, 2023. The incremental value of the modified option award of $64,093, along with the unamortized portion of the original award, will be amortized through the termination date in February 2021.

 

The option grants described below were issued from the Company’s 2019 Stock Incentive Plan (“Incentive Plan”).

 

On September 20, 2019, the Company issued ten-year options for the purchase of 400,000 shares of AESE common stock, pursuant to the Incentive Plan. The options had an exercise price of $5.66 per share and a 4-year vesting term, with 25% vesting on each anniversary of the date of grant. The options had an aggregate grant date fair value of $867,120.

 

On November 21, 2019, the Company issued ten-year options for the purchase of 2,080,000 shares of AESE common stock, pursuant to the Incentive Plan. The options had an exercise price of $4.09 per share and a 4-year vesting term, with 25% vesting on each anniversary of the date of grant. The options had an aggregate grant date fair value of $3,263,551.

 

On July 1, 2020, the Company issued ten-year options for the purchase of 80,000 shares of common stock, with a grant date value of $61,186, to two directors of the Company. The options are exercisable at $2.11 per share and have a 4-year vesting term, with 25% vesting on each anniversary of the date of grant.

 

On August 6, 2020, the Company issued ten-year options for the purchase of 120,000 shares of common stock, with an aggregate grant date value of $97,947 to WPT’s general counsel. The options are exercisable at $2.17 per share and have a 4-year vesting term with 25% vesting on each anniversary of the date of grant.

 

The grant date value of options granted during the year ended December 31, 2020 were calculated using the Black-Scholes option pricing model, with the following assumptions used:

 

    For the Years Ended  
    December 31,  
    2020     2019  
Risk free interest rate     0.55 - 0.69%       1.74 - 1.77%  
Expected term (years)     6.25       6.25  
Expected volatility     38%       36%  
Expected dividends     0.00%       0.00%  

 

The weighted average grant date fair value of the stock options granted during the years ended December 31, 2020 and 2019 was approximately $0.80 and $1.67 per share, respectively.

 

The expected term used for options is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

 

For the years ended December 31, 2020 and 2019, the Company recorded $1,158,173 and $149,893, respectively, of stock-based compensation expense related to stock options issued as compensation, of which $214,239 and $22,339, respectively, was included in net income (loss) of discontinued operations on the accompanying consolidated statements of operations. As of December 31, 2020, there was $1,884,569 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the weighted average remaining vesting period of 2.9 years.

 

Restricted Common Stock

 

A summary of the non-vested restricted common stock activity during the year ended December 31, 2020 is presented below:

 

    Number of
Restricted Stock
    Weighted Average
Grant Date
Fair Value
 
Non-vested balance, January 1, 2020     80,393     $ 5.66  
Granted     199,143       2.03  
Vested     (80,393 )     5.66  
Forfeited    
-
     
-
 
Non-vested balance, December 31, 2020     199,143     $ 2.03  

The stock grants described below were issued from the Company’s Incentive Plan.

 

On September 20, 2019, the Company issued an aggregate of 80,393 shares of restricted common stock, pursuant to the Incentive Plan, to certain members of the Board of Directors and Executives. The restricted common stock had an aggregate grant date fair value of $455,000 and vested on the one-year anniversary of the date of grant. The shares were valued at the trading price of the Company’s stock on the date of grant.

 

On July 1, 2020, the Company issued 18,958 shares of restricted common stock with a grant date value $40,000 to two directors of the Company. The restricted common stock remains subject to transfer and forfeiture restrictions until the shares vest on the one-year anniversary of the date of grant.

 

On August 7, 2020, the Company issued 50,000 shares of restricted common stock, with an aggregate grant date value of $109,000 to its Chief Financial Officer (“CFO”). The 50,000 shares of restricted common stock have transfer and forfeiture restrictions until the shares vest in two equal installments on August 18, 2021 and August 18, 2022.

 

On August 7, 2020, the Company issued 94,471 shares of restricted common stock with a grant date value $205,000 to certain officers and directors. The restricted common stock remains subject to transfer and forfeiture restrictions until the shares vest on the one-year anniversary of the date of grant.

 

On September 24, 2020, the Company issued 35,714 shares of restricted common stock with a grant date value of $50,000 to its CFO. The restricted common stock remains subject to transfer and forfeiture restrictions until the shares vest on August 18, 2021.

 

For the years ended December 31, 2020 and 2019, the Company recorded $588,220 and $127,152, respectively, of stock-based compensation expense related to restricted stock issued as compensation of which $40,165 and $6,986, respectively, was included in net income (loss) of discontinued operations on the accompanying statements of operations. As of December 31, 2020, there was $239,779 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 1.0 years.

 

Warrants

 

Prior to the August 9, 2019 Closing Date of the Merger (see Note 1 – Background and Basis of Presentation), BRAC issued 14,305,000 five-year warrants (the “BRAC Warrants”) for the purchase of the Company’s common stock at $11.50 per share in connection with BRAC’s initial public offering. These previously issued BRAC Warrants are deemed to be issued in connection with the Merger, as a result of the reverse recapitalization.

 

As of result of the August 9, 2019 Merger, the Company issued to the former owners of Allied Esports and WPT five-year warrants to purchase an aggregate of 3,800,003 shares of common stock at a price of $11.50 per share and issued five-year warrants for the purchase of an aggregate of 532,000 shares of common stock to the Noteholders with an exercise price of $11.50 per share.

 

On June 8, 2020, the Company issued warrants for the purchase of 1,454,546 shares of common stock at $4.13 per share in connection with the issuance of Senior Secured Convertible Notes (See Note 10 – Convertible Debt and Convertible Debt, Related Party, Senior Secured Convertible Notes).

 

A summary of warrant activity during the year ended December 31, 2020 is presented below:

 

    Number of Warrants     Weighted Average Exercise Price     Weighted Average Remaining Life in Years     Intrinsic
Value
 
Outstanding, January 1, 2020     18,637,003     $ 11.50       4.6     $
-
 
Issued     1,454,546       4.13                  
Exercised    
-
     
-
                 
Cancelled    
-
     
-
                 
Outstanding, December 31, 2020     20,091,549     $ 10.97       3.7     $
-
 
                                 
Exercisable, December 31, 2020     20,091,549     $ 10.97       3.7     $
-