Quarterly report pursuant to Section 13 or 15(d)

STOCK BASED COMPENSATION

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STOCK BASED COMPENSATION
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
STOCK BASED COMPENSATION
STOCK BASED COMPENSATION

Stock-based compensation to employees and non-employees is recognized as expense in the condensed consolidated statement of operations. The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award (determined using Black-Scholes option pricing model for stock options and fair value for Restricted Stocks Units ("RSUs"), and is recognized as an expense over the requisite service period (generally the vesting of the equity awards). Determining the fair value of stock-based awards at the grant date requires significant estimates and judgments, including future employee stock option exercise behavior and requisite service periods. The Company adopted ASU 2016-09 and 2018-07 during the year and recognizes forfeitures as they occur. There were none since the adoption of these pronouncements.

On June 21, 2017, at the annual meeting of stockholders, the Company's shareholders approved (i) an increase of 1,000,000 shares to the Finjan Holdings, Inc. 2014 Plan and (ii) the addition of an “evergreen” feature which provides for the annual replenishment of shares to the Restated 2014 Plan share reserve without stockholder approval, which represented an additional 1,385,366 shares as of January 1, 2018 (equal to 5.0% of our outstanding shares of Common Stock as of the end of our immediately preceding fiscal year). As of September 30, 2018, the Company has 1,558,142 shares available for issuance under the 2014 Plan.

During the three and nine months ended September 30, 2018, the Company expensed $471,000 and $1,224,000, respectively, and $222,000 and $641,000 for the three and nine months ended September 30, 2017, of stock-based compensation in the condensed consolidated statements of operations. All stock-based compensation expenses were related to selling, general and administration.

During the nine months ended September 30, 2018, 143,026 stock options were exercised for cash proceeds of $0.2 million.

Stock Options

The following table is a summary of stock option activity during the nine months ended September 30, 2018:
 
 
Number of
Options Outstanding
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life (in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding 2013 & 2014 Plans – December 31, 2017
 
2,341,340

 
$
1.77

 
5.78

 
$
1,087

Options granted
 
376,667

 
$
2.41

 
9.41

 
$
716

Options exercised
 
(143,026
)
 
$
1.61

 

 

Options forfeited
 

 

 

 

Options expired
 

 

 

 

Outstanding – September 30, 2018
 
2,574,981

 
$
1.88

 
7.21

 
$
6,268

Exercisable – September 30, 2018
 
1,352,795

 
$
1.59

 
5.53

 
$
3,673



As of September 30, 2018, total compensation cost not yet recognized related to restricted stock awards and unvested stock options was approximately $2.6 million, which is expected to be recognized over a weighted-average period of 2.5 years.

The Company estimates the fair values of stock options using the Black-Scholes option-pricing model. The assumptions used in the Black-Scholes option-pricing model and the weighted-average grant date fair value of the option awards for the periods presented were as follows:
 
Three and Nine Months Ended September 30, 2018
 
Three and Nine Months Ended September 30, 2017
Volatility
 
105%
 
 
132% - 141%
Expected term (in years)
 
6
 
 
6
Risk-free rate
 
2.24%
 
 
1.82% - 2.19%
Expected dividend yield
 
 
 
Weighted-average grant date fair value per option
$
2.24
 
$
1.45 - 3.32


The risk-free interest rate is based on the U.S. Treasury rates with maturities similar to the expected term of the option. The volatility is a measure of the amount by which the Company’s share price has fluctuated or is expected to fluctuate and was based on historical volatility of comparative companies that are similar to the Company. During the nine months ended September 30, 2018, the Company updated its volatility assumptions to reflect the increased trading history in the Company’s stock. The expected term was estimated using the simplified method. The simplified method calculates the expected term as the average vesting of the option. The dividend yield is 0% as the Company has never declared or paid any cash dividends and does not anticipate paying dividends in the future.

Restricted Stock Units

The following table is a summary of restricted stock units award activity during the nine months ended September 30, 2018:
 
Nine Months Ended
 
September 30, 2018
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Non-vested at beginning of period
438,712

 
$
2.28

Shares granted
200,000

 
$
3.16

Shares vested
(96,236
)
 
$
2.33

Shares forfeited

 

 
 
 
 
Non-vested
542,476

 
$
2.60



The aggregate intrinsic value of the unvested RSU's was $2.3 million as of September 30, 2018.