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Shareholders Equity | 6 Months Ended
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Jun. 30, 2021
Shareholders' Equity |
Shareholders' Equity | 6. Shareholders’ Equity (a)Authorized shares The Company is authorized to issue an unlimited number of Common Shares with no par value and an unlimited number of Preferred Shares with no par value. (b)Purchases of Equity Shares Normal Course Issuer Bid Commencing on May 20, 2019, the Company entered into a share repurchase program on the NASDAQ conducted in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934. The Company was authorized to repurchase up to 1,367,762 of its outstanding common shares, representing 5% of the outstanding common shares of Epsilon as of May 20, 2019, for an aggregate purchase price of not more than $5.0 million. The program ended on May 19, 2020, but Epsilon’s final repurchase under this program occurred on May 8, 2020, and the shares were subsequently cancelled. Commencing on January 1, 2021, the Company entered into a share repurchase program on the NASDAQ conducted in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934. The Company is authorized to repurchase up to 1,193,000 of its outstanding common shares, representing 5% of the outstanding common shares of Epsilon as of January 1, 2021. The program will end on December 31, 2021 unless the maximum amount of common shares is purchased before then or Epsilon provides earlier notice of termination. Repurchases may be made at management’s discretion from time to time through the facilities of the NASDAQ Global Market. The price paid for the common shares will be, subject to applicable securities laws, the prevailing market price of such common shares on the NASDAQ Global Market at the time of such purchase. The Company intends to fund the purchase out of available cash and does not expect to incur debt to fund the share repurchase program. The shares are accounted for as treasury shares until such a time as they are cancelled. The following table contains activity relating to our acquisition of equity securities during the six months ended June 30, 2021: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ |  | ​ | ​ | Maximum number
​ | ​ | ​ | ​ | ​ | ​ | of shares that
​ | ​ | ​ | ​ | ​ | ​ | may yet be
​ | ​ | Total number | ​ | Average price | ​ | purchased under
​ | ​ | of shares | ​ | paid per | ​ | the plans or
​ |  | purchased | ​ | share |  | programs
Beginning of normal-course issuer bid, January 1, 2021 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 1,193,000
January 2021 (1) | ​ | — | ​ | $ | — | ​ | ​ | ​
February 2021 (1) | ​ | 62,400 | ​ | $ | 4.07 | ​ | ​ | ​
March 2021 (1) | ​ | 60,800 | ​ | $ | 3.92 | ​ | ​ | ​
April 2021 (1) | ​ | 63,315 | ​ | $ | 3.89 | ​ | ​ | ​
May 2021 (1) | ​ | 63,900 | ​ | $ | 4.02 | ​ | ​ | ​
June 2021 (1) | ​ | 13,800 | ​ | $ | 4.77 | ​ | ​ | ​
Total as of June 30, 2021 | ​ | 264,215 | ​ | $ | 4.02 | ​ | ​ | 928,785
| (1) | Epsilon repurchased these shares under its share repurchase program that commenced on January 1, 2021, as described above.
​ (c)Equity Incentive Plan Epsilon’s board of directors (the “Board”) adopted the 2020 Equity Incentive Plan (the “2020 Plan”) on July 22, 2020 subject to approval by Epsilon’s shareholders at Epsilon’s 2020 Annual General and Special Meeting of Shareholders, which occurred on September 1, 2020 (the “Meeting”). Shareholders approved the 2020 Plan at the Meeting. Following Epsilon’s listing on the NASDAQ Global Market, the Board determined that it is in the best interest of the shareholders to approve a new incentive plan that is compliant with U.S. public company equity plan rules and practices that would replace Epsilon’s Amended and Restated 2017 Stock Option Plan (including its predecessors) and the Share Compensation Plan (collectively referred to as the “Predecessor Plans”). No further awards will be granted under the Predecessor Plans. The 2020 Plan provides for incentive compensation in the form of stock options, stock appreciation rights, restricted stock and stock units, performance shares and units, other stock-based awards and cash-based awards. Under the 2020 Plan, Epsilon will be authorized to issue up to 2,000,000 Common Shares. As of December 31, 2020, the Company granted, after the Compensation Committee approved the terms, target formulas, and peer group applicable to the performance incentive awards, 214,000 performance stock units (“PSUs”), and 111,900 time-based restricted shares to employees, leaving 1,674,100 shares available to be granted under the 2020 Plan. No shares subject to awards currently outstanding under the Predecessor Plans that expire or are forfeited will become available for issuance under the 2020 Plan. Restricted and Performance Stock Units For the six months ended June 30, 2021, no shares of Restricted Stock were awarded. For the year ended December 31, 2020, 111,900 common shares of Restricted Stock with a weighted average market price at the grant date of $3.71 were awarded to the Company’s officers, employees, and board of directors. These shares vest over a three-year period, with one-third of the shares being issued per period on the anniversary of the award resolution. The vesting of the shares is contingent on the individuals’ continued employment or service. The Company determined the fair value of the granted Restricted Stock-based on the market price of the common shares of the Company on the date of grant. The following table summarizes Restricted Stock activity for the six months ended June 30, 2021, and the year ended December 31, 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six months ended | ​ | Year ended
​ | ​ | June 30, 2021 | ​ | December 31, 2020
​ | ​ | ​ | ​ | Weighted | ​ | ​ | ​ | Weighted
​ | ​ | Number of | ​ | Average | ​ | Number of | ​ | Average
​ | ​ | Shares | ​ | Remaining Life | ​ | Shares | ​ | Remaining Life
​ |  | Outstanding |  | (years) |  | Outstanding |  | (years)
Balance non-vested Restricted Stock at beginning of period | ​ | 290,070 | ​ | 1.60 | ​ | 346,499 | ​ | 1.67
Granted | ​ | — | ​ | — | ​ | 111,900 | ​ | 3.00
Vested | ​ | — | ​ | — | ​ | (168,329) | ​ | —
Forfeited | ​ | (22,000) | ​ | 1.68 | ​ | — | ​ | —
Balance non-vested Restricted Stock at end of period | ​ | 268,070 | ​ | 1.09 | ​ | 290,070 | ​ | 1.60
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ Stock compensation expense for the granted Restricted Stock is recognized over the vesting period. Stock compensation expense recognized during the three and six months ended June 30, 2021 was $137,207 and $274,413, respectively (for the three and six months ended June 30, 2020, $172,052 and $344,104, respectively). At June 30, 2021, the Company had unrecognized stock-based compensation related to these shares of $713,722 to be recognized over a weighted average period of 1.01 years (at December 31, 2020: $1,068,819 over 1.2 years). Performance Share Unit Awards (“PSU”) The Company grants PSUs, which are paid in stock to certain key employees. For the three and six months ended June 30, 2021, no PSUs were awarded. For the year ended December 31, 2020, 214,000 PSUs. PSUs are based on a three-year performance period with performance being measured each year at December 31. The PSUs will vest on the last day of the performance period. The number of PSUs that will ultimately vest is based on two performance targets as follows:
| ● | The targets for the PSUs are based on (i) the relative total stockholder return (“TSR”) percentile ranking and (ii) the relative cash flow per debt adjusted share – growth (“CFDAS Growth”) percentile ranking of the Company, each as compared to the Company’s Performance Peer Group during the applicable one-year performance period ending on December 31.
| ● | Cash Flow per Debt Adjusted Share (“CFDAS”) is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) divided by the sum of the 1) the total debt plus the value of preferred stock minus cash and the amount of dividends paid for the year divided by the share price at the end of the year; and 2) the actual share count at year end.
| ● | The vesting of each PSU Award will be based 50% on TSR performance and 50% based on CFDAS Growth performance.
| ● | The recipient of the award must be employed with the Company at the time of vesting.
The number of shares ultimately issued under these awards can range from zero to 200% of target award amounts. The PSUs are accounted for as equity awards. The fair value of the 50% for performance based on CFDAS Growth was determined as the market price of the common shares of the Company on the date of grant. Weighted average fair value of CFDAS PSUs granted during the year ended December 31, 2020 was $3.41 per unit. The fair value of the 50% for performance based on TSR was determined on the grant date by the application of a Monte Carlo simulation model. Weighted average fair value of TSR PSUs granted during the year ended December 31, 2020 was $4.10 per share. The Monte Carlo simulation model calculated grant date fair value for awards issued during the period using the following assumptions: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, | ​ | December 31,
​ |  | 2021 | ​ | 2020
Expected life (in years) | ​ | ​ | — | ​ | ​ | 0.33 - 3
Expected volatility | ​ | ​ | — | ​ | ​ | 42.1% - 53.6%
Risk-free rate of return | ​ | ​ | — | ​ | ​ | 0.10% - 0.17%
Weighted average grant-date fair value per PSU | ​ | $ | — | ​ | $ | 4.10
​ The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the performance stock awards, to calculate the fair value of the awards. Expected volatilities in the model were estimated using a historical period consistent with the expected term for each annual performance period of the awards. The risk-free interest rate was based on the United States Treasury rate measured over a term commensurate with the expected term for each annual performance period of the awards. The expected term is based on the time between the valuation date and the end of each annual performance period of the awards. The valuation model assumes dividends are immediately reinvested. The following table summarizes PSUs for the six months ended June 30, 2021 and the year ended December 31, 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six months ended | ​ | Year ended
​ | ​ | June 30, 2021 | ​ | December 31, 2020
​ | ​ | ​ | ​ | Weighted | ​ | ​ | ​ | Weighted
​ | ​ | Number of | ​ | Average | ​ | Number of | ​ | Average
​ | ​ | Shares | ​ | Remaining Life | ​ | Shares | ​ | Remaining Life
​ |  | Outstanding |  | (years) |  | Outstanding |  | (years)
Balance non-vested PSUs at beginning of period | ​ | 193,167 | ​ | 1.60 | ​ | — | ​ | —
Granted | ​ | — | ​ | — | ​ | 214,000 | ​ | 1.61
Vested | ​ | (41,667) | ​ | — | ​ | (20,833) | ​ | —
Balance non-vested PSUs at end of period | ​ | 151,500 | ​ | 1.47 | ​ | 193,167 | ​ | 1.60
​ Stock compensation expense for the granted PSUs is recognized over the vesting period. Stock compensation expense recognized during the three and six months ended June 30, 2021 related to PSUs was $98,835 and $164,127, respectively (for the three and six months ended June 30, 2020, nil). At June 30, 2021, the Company had unrecognized stock-based compensation related to these shares of $438,000 to be recognized over a weighted average period of 1.17 years (at June 30, 2020: nil over nil years). ​ Stock Options Through June 30, 2021, the Company had outstanding stock options covering 245,000 Common Shares at an overall average exercise price of $5.27 per Common Share to directors, officers, and employees of the Company and its subsidiaries. These 245,000 options have a weighted average expected remaining term of approximately 1.71 years. The following table summarizes stock option activity for the six months ended June 30, 2021 and the year ended December 31, 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Six months ended | ​ | Year ended
​ | ​ | June 30, 2021 | ​ | December 31, 2020
​ | ​ | ​ | ​ | Weighted | ​ | ​ | ​ | Weighted
​ | ​ | Number of | ​ | Average | ​ | Number of | ​ | Average
​ | ​ | Options | ​ | Exercise | ​ | Options | ​ | Exercise
Exercise price in US$ |  | Outstanding |  | Price (1) |  | Outstanding |  | Price (1)
Balance at period-end | ​ | 245,000 | ​ | $ | 5.27 | ​ | ​ | 245,000 | ​ | $ | 5.27
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Exercisable at period-end | ​ | 245,000 | ​ | $ | 5.27 | ​ | ​ | 245,000 | ​ | $ | 5.27
| (1) | Exercise price has been converted to US$ using the rate of Cdn$1.33 to US$1, the rate on March 15, 2019, the date Epsilon Energy, Ltd was delisted from the TSX.
​ At June 30, 2021, using the Black Scholes model, the Company had unrecognized stock-based compensation, related to these options, of nil (at December 31, 2020: nil). The aggregate intrinsic value at June 30, 2021 was nil (at December 31, 2020: nil). For the three and six months ended June 30, 2021, nil of stock compensation expense, related to these options, was recognized (for the three and six months ended June 30, 2020, nil and $1,867, respectively). During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company awarded no stock options.

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- Definition The entire disclosure for shareholders' equity and share-based payment arrangement. Includes, but is not limited to, disclosure of policy and terms of share-based payment arrangement, deferred compensation arrangement, and employee stock purchase plan (ESPP). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI http://asc.fasb.org/topic&trid=2208762 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 + Details
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