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Note 15 - Equity-based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Text Block]

NOTE 15. EQUITY-BASED COMPENSATION

Equity Compensation Plans

In October 2007, the Company adopted the 2007 Omnibus Incentive Plan (the “2007 Plan”) to provide for the granting of equity awards, such as stock options, unrestricted and restricted common stock, stock units, dividend equivalent rights, and stock appreciation rights to employees, directors and outside consultants, as determined by the Board. The 2007 Plan expired on March 15, 2017. Upon expiration, new awards cannot be issued pursuant to the 2007 Plan, but outstanding awards continue to be governed by its terms. Stock options granted under the 2007 Plan expire no later than ten years from the date of grant. All stock options outstanding under the 2007 Plan were fully vested as of December 31, 2020.

In March 2017, the Company adopted the 2017 Omnibus Incentive Plan (the “2017 Plan”), which was approved by stockholders on June 2, 2017, to provide for the granting of equity awards, such as nonqualified stock options (“NQSOs”), incentive stock options (“ISOs”), restricted stock, performance shares, stock appreciation rights (“SARs”), RSUs and other share-based awards to employees, directors, and consultants, as determined by the Board. The 2017 Plan does not affect awards previously granted under the 2007 Plan. Upon adoption, the 2017 Plan allowed for awards of up to 2,318,486 shares of the Company’s common stock, plus an automatic annual increase in the number of shares authorized for awards on the first day of each of the Company’s fiscal years beginning January 1, 2018 through January 1, 2027 equal to (i) 4% of the number of shares of common stock outstanding on the last day of the immediately preceding fiscal year or (ii) such lesser number of shares of common stock than provided for in Section 4(a)(i) of the 2017 Plan as determined by the Board. On January 15, 2021, the number of shares available for future awards under the 2017 Plan was increased by 1,671,303 shares. As of December 31, 2021, there were 1,842,993 shares available for future awards under the 2017 Plan.

Under the terms of the 2017 Plan, the exercise price of NQSOs, ISOs and SARs may not be less than 100% of the fair market value of the common stock on the date of grant and, if ISOs are granted to an owner of more than 10% of the Company’s stock, then not less than 110% of the fair market value of the common stock on the date of grant. The term of awards will not be longer than ten years, or in the case of ISOs, not longer than five years with respect to holders of more than 10% of the Company’s stock. Stock options granted to employees generally vest over four years, while options granted to directors and consultants typically vest over a shorter period, subject to continued service. The Company issues new shares to satisfy option exercises under the 2007 Plan and the 2017 Plan.

Stock Option Summary

The following table summarizes information about the Company’s stock options and restricted stock outstanding at December 31, 2021, 2020, and activity during the year ended December 31, 2021:

(in thousands, except years and per share data)	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2020		3,165		$	2.05		7.6	$	189

Options granted		516		$	0.66
Restricted stock units granted		1,528		$	—
Restricted stock units vested		(488	)	$	—
Options forfeited/cancelled		(272	)	$	2.35
Outstanding at December 31, 2021		4,449		$	1.39		7.6	$	460
Vested and expected to vest at December 31, 2021		4,125		$	1.46		7.5	$	406

Vested at December 31, 2021		2,150		$	2.42		5.4	$	8

Exercisable at December 31, 2021		2,150		$	2.42		5.9	$	8

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock as quoted on the NYSE American as of December 31, 2021 for options that have a quoted market price in excess of the exercise price. There were no stock option awards exercised during the year ended December 31, 2021. There were 20 thousand stock option awards exercised during the year ended December 31, 2020 for which the Company received cash payments of $7 thousand. There was no intrinsic value for stock option awards exercised for the year ended December 31, 2020. There were 83 thousand stock option awards exercised for the year ended December 31, 2019 for which the Company received cash payments of $0.2 million. There was no intrinsic value for stock option awards exercised for the year ended December 31, 2019.

As of December 31, 2021, total unrecognized compensation cost related to unvested stock options and restricted stock was approximately $1.2 million. This amount is expected to be recognized as stock-based compensation expense in the Company’s consolidated statements of operations and comprehensive loss over the remaining weighted average vesting period of 2.29 years.

Stock Option Awards to Employees and Directors

The Company grants options to purchase common stock to its employees and directors at prices equal to or greater than the market value of the stock on the dates the options are granted. The Company has estimated the value of stock option awards as of the date of grant by applying the Black-Scholes option pricing model using the single-option valuation approach. The application of this valuation model involves assumptions that are judgmental and subjective in nature. See Note 2, “Summary of Significant Account Policies,” for a description of the accounting policies that the Company applied to value its stock-based awards.

During the years ended December 31, 2021, 2020, and 2019, the Company granted options to employees and directors to purchase an aggregate of 516,000, 1,158,000, and 145,000 shares of common stock, respectively.

The weighted-average assumptions used in determining the value of options are as follows:

	Year Ended December 31,
Assumptions	2021			2020			2019
Expected price volatility		164	%		161	%		112	%
Expected term (in years)		6.19			6.45			6.14
Risk-free interest rate		1.05	%		0.45	%		1.99	%
Dividend yield		0.00	%		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	0.64		$	0.94		$	0.31

Expected Price Volatility—This is a measure of the amount by which the stock price has fluctuated or is expected to fluctuate. The computation of expected volatility was based on the historical volatility of our own stock.

Expected Term—This is the period of time over which the options granted are expected to remain outstanding. The expected life assumption is based on the Company’s historical data.

Risk-Free Interest Rate—This is the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option.

Dividend Yield—We have not made any dividend payments nor do we have plans to pay dividends in the foreseeable future.

Forfeitures are estimated at the time of grant and reduce compensation expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

During the year ended December 31, 2021, the Company granted 1,200,000 RSUs to employees and directors. During the year December 31, 2020, the Company granted 160,000 RSU to one employee. No employees were granted RSUs during the year ended December 31, 2019.

For the years ended December 31, 2021, 2020, and 2019, the Company recognized stock-based compensation expense of $0.7 million, $0.5 million, and $0.4 million, respectively, for option awards to employees and directors.

The Company modified stock options held by Mr. Yonghao (Carl) Ma in April 2019, Mr. Yanbin (Lawrence) Liu in May 2019, Mr. Mark Sieczkarek in July 2019, Mr. Todd Zavodnick in September 2019, Ms. Gail Maderis in April 2020 and Mr. Xiaopei Wang in August 2020, who each resigned as a director of the Company. The option exercise period for each of the former directors listed was extended from three months to three years, calculated from each director’s date of resignation. Each director’s stock option awards became fully vested at the date of his or her resignation. In connection with the stock option modification for each of Messrs. Ma, Liu, Sieczkarek, Zavodnick, Ms. Maderis and Mr. Wang, the Company recognized stock-based compensation expense of $14 thousand, $7 thousand, $60 thousand, $24 thousand, $36 thousand and $17 thousand, respectively, which are included in the figure above.

Stock-Based Awards to Non-Employees

During the year December 31, 2021, the Company did not grant options to purchase shares of common stock to non-employees. During the year ended December 31, 2020, the Company granted options to purchase an aggregate of 400,000 shares of common stock to non-employees in exchange for advisory and consulting services. Out of the 400,000 shares, 300,000 shares were granted to a related party, Eric Wu, Partner and Senior Vice President of China Kington and the brother of Bob Wu, who serves on the Company’s Board of Directors. Please refer to Note 19, “Related Party Transactions”, for more details related to the consulting service agreement. During the year ended December 31, 2019, the Company did not grant options to purchase shares of common stock to non-employees.

Stock options granted to non-employees recorded at their fair value on the measurement date and recognized over the respective service or vesting period. The fair value of the stock options granted was calculated using the Black-Scholes-Merton option pricing model based upon the following assumptions:

	Year Ended December 31,
Assumptions	2021		2020
Expected price volatility		—		162	%
Expected term (in years)		—		6.34
Risk-free interest rate		—		0.50	%
Dividend yield		—		0.00	%
Weighted-average fair value of options granted during the period	$	—	$	0.73

The Company did not grant restricted stock to non-employees during the year ended December 31, 2021.

In connection with Mr. Sieczkarek’s resignation, the Company granted 168 thousand shares of fully vested registered stock to Mr. Sieczkarek during the year ended December 31, 2019. The expense related to these shares was recorded in the Company’s consolidated statements of operations and comprehensive loss. At the time of his resignation, the Company also entered into a two-year consulting agreement with Mr. Sieczkarek under which he is entitled to receive additional shares of fully vested registered stock in exchange for consulting services. According to the terms of the agreement, the stock units are to be issued in two tranches of $0.2 million each for a total aggregate fair market value equal to $0.4 million. The number of shares issued for each tranche is calculated using the closing price on each respective grant date. In July 2020, the Company issued 192,983 shares to Mr. Sieczkarek to fulfill the first tranche. In July 2021, the Company issued 328,359 shares to Mr. Sieczkarek to fulfill the second tranche. The expense related to the shares issued under the consulting agreement is being recorded over the term of the Consulting Agreement.

During the fourth quarter of the year ended December 31, 2019, the Company paid two consultants, Ms. Moon and Ms. Xiao, via a combination of 36 thousand registered shares and cash for services rendered, based on the terms of their consulting agreements.

For the years ended December 31, 2021, 2020, and 2019, the Company recognized stock-based compensation expense of $240 thousand, $64 thousand, and $37 thousand, respectively, related to non-employee options and restricted stock grants.

Summary of Stock-Based Compensation Expense

A summary of the stock-based compensation expense included in results of operations for the options and restricted stock awards discussed above is as follows (in thousands):

	Year Ended December 31,
	2021		2020		2019
Research and development	$	10	$	23	$	42
Sales and marketing		129		85		93
General and administrative		794		424		351
Total stock-based compensation expense	$	933	$	532	$	486