Quarterly report pursuant to Section 13 or 15(d)

Stockholders??? Equity

v3.20.2
Stockholders’ Equity
9 Months Ended
Sep. 30, 2020
Stockholders' Equity Note [Abstract]  
Stockholders’ Equity

Note 12 – 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.

 

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, which was recorded as subscription receivable and common stock subscribed on the accompanying condensed consolidated balance sheet. The Option Shares were not deemed to be issued until the closing of the sale of the Option Shares 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.

 

Stock Options

 

A summary of the option activity during the nine months ended September 30, 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, September 30, 2020     2,430,000     $ 4.15       9.15     $
-
 
                                 
Exercisable, September 30, 2020     100,000     $ 5.66       2.38     $
-
 

 

Options outstanding and exercisable as of September 30, 2020 are as follows:

 

Options Outstanding     Options Exercisable  
            Weighted        
      Outstanding     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      
-
     
-
 
$ 5.66       340,000       2.38       100,000  
          2,430,000               100,000  

 

Effective June 30, 2020 two of the Company’s directors (the “Resigning Members”) 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 during the three and nine months ended September 30, 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 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 three and nine months ended September 30, 2020 were calculated using the Black-Scholes option pricing model, with the following assumptions used:

 

Risk free interest rate     0.55% – 0.69 %
Expected term (years)     6.25  
Expected volatility     38 %
Expected dividends     0.00 %

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.

 

During the three and nine months ended September 30, 2020, the Company recorded stock-based compensation expense related to stock options issued as compensation of $312,117 and $766,279 respectively, and during the three and nine months ended September 30, 2019, the Company recorded $5,940 and $5,940, respectively. As of September 30, 2020, there was $2,789,317 of unrecognized stock-based compensation expense related to the stock options that will be recognized over the weighted average remaining vesting period of 3.2 years. 

 

Common Stock and Restricted Common Stock

 

A summary of the non-vested restricted common stock activity during the nine months ended September 30, 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       2.02  
Vested     (80,393 )     5.66  
Forfeited    
-
     
-
 
Non-vested balance, September 30, 2020     199,143     $ 2.02  

 

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

 

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 its common stock and 50,000 shares of restricted common stock, with an aggregate grant date value of $218,000 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 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 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 in two equal installments on August 18, 2021 and August 18, 2022.

 

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.

 

The Company recorded stock-based compensation expense of $265,050 and $496,334, during the three and nine months ended September 30, 2020 respectively, and recorded stock-based compensation of $12,467, during the three and nine months ended September 30, 2019, respectively, related to restricted stock issued as compensation. As of September 30, 2020, there was $364,487 of unrecognized stock-based compensation expense related to restricted stock that will be recognized over the weighted average remaining vesting period of 1.2 years.

 

Warrants

 

A summary of warrant activity during the nine months ended September 30, 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, September 30, 2020     20,091,549     $ 10.97       3.9     $
-
 
                                 
Exercisable, September 30, 2020     20,091,549     $ 10.97       3.9     $
-
 

 

Warrants outstanding and exercisable as of September 30, 2020 are as follows:

 

Warrants Outstanding     Warrants Exercisable  
Exercise Price     Exercisable Into   Outstanding
Number of
Warrants
    Weighted
Average
Remaining
Life in Years
    Exercisable
Number of
Warrants
 
$ 11.50     Common Stock     18,637,003     3.9       18,637,003  
$ 4.13     Common Stock     1,454,546     4.7       1,454,546  
              20,091,549             20,091,549  

On June 8, 2020, the Company issued five-year warrants to purchase 1,454,546 shares of common stock (the “Warrant Shares”) at an exercise price of $4.125 per share, in connection with the issuance of Senior Notes (see Note 7 – Convertible Debt and Convertible Debt, Related Party). The warrants could be exercised on a cashless basis if there was no effective registration statement registering the Warrant Shares at the time of exercise. The registration of the Warrant Shares became effective on July 31, 2020. 

 

The Company computed the fair value of the warrants using a Black-Scholes option pricing model using the following assumptions: expected volatility of 45%, risk-free rate of 0.45%, expected term of 5 years, and expected dividends of 0.00%.