Blüm Holdings Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2018

Equity Incentive Plans

In the first quarter of 2016, the Company adopted the 2016 Equity Incentive Plan. In the fourth quarter of 2018, the Company adopted the 2018 Equity Incentive Plan. The following table contains information about both plans as of December 31, 2018:

	Awards Reserved for Issuance		Awards Issued		Awards Available for Grant

2016 Equity Incentive Plan		2,000,000		1,541,064		458,936
2018 Equity Incentive Plan		6,600,000		5,100,000		1,500,000

Stock Options

The following table summarizes the Company’s stock option activity and related information for the year ended December 31, 2018 and 2017:

	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value of In-the-Money Options

Options Outstanding as of January 1, 2017		446,667		$	1.35

Options Granted		731,065		$	2.68
Options Exercised		-		$	-
Options Forfeited		-		$	-
Options Expired		-		$	-
Options Outstanding as of December 31, 2017		1,177,732		$	2.17

Options Granted		6,911,667		$	1.56
Options Exercised		-		$	-
Options Forfeited		(436,668	)	$	2.36
Options Expired		-		$	-

Options Outstanding as of December 31, 2018		7,652,731		$	1.61	9.6 years	$	-
Options Exercisable as of December 31, 2018		1,870,039		$	1.92	9.1 years	$	-

The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $0.56 on December 31, 2018 and the exercise price of options, multiplied by the number of options. As of December 31, 2018, there was $7,967,114 total unrecognized stock-based compensation. Such costs are expected to be recognized over a weighted-average period of approximately 2.75 years.

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following weighted-average assumptions were used to calculate stock-based compensation:

	Year Ended December 31,
	2018			2017
Expected term (years)	6 Years			5 Years
Volatility	113.2-128.0		%	117.3-120.9		%
Risk-Free Interest Rate	2.5-2.9		%	2.0-2.4		%
Dividend Yield		0	%		0	%

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Hence, the Company uses the “simplified method” described in Staff Accounting Bulletin 107 to estimate the expected term of share option grants.

The expected stock price volatility assumption was determined by examining the historical volatilities for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available.

The risk-free interest rate assumption is based on the U.S. treasury instruments whose term was consistent with the expected term of the Company’s stock options.

The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the Company stock-based compensation.

The Company estimates the forfeiture rate at the time of grant and revisions, if necessary, were estimated based on management’s expectation through industry knowledge and historical data.

Stock-Based Compensation Expense

The following table sets forth the total stock-based compensation expense resulting from stock options and restricted grants of common stock to employees, directors and non-employee consultants in the consolidated statement of operations which are included in selling, general and administrative expenses:

	For the Year Ended
	December 31, 2018				December 31, 2017
Type of Award	Number of Shares or Options Granted		Stock-Based Compensation Expense		Number of Shares or Options Granted		Stock-Based Compensation Expense
Stock Options		6,911,667	$	2,527,982		731,065	$	692,971

Stock Grants:
Employees (Common Stock)		201,296		603,117		158,867		490,880
Employees (Series B Preferred Stock)		0		0		40,000		1,035,406
Directors (Common Stock)		49,500		99,990		81,061		221,973
Non–Employee Consultants (Common Stock)		132,971		225,428		389,374		1,284,562

Total Stock–Based Compensation Expense			$	3,456,517			$	3,725,792