Stock Award Programs

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock Award Programs

The Company’s stock incentive plan is administered by the Compensation Committee and authorizes the grant or award of incentive stock options, non-qualified stock options (NQSO), restricted stock awards (RSA), stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company has issued restricted stock awards and non-qualified stock option awards as described below.

Valuation of Stock Awards

Restricted Stock. The Company records the fair value of all restricted stock awards based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock award shares are issued when granted and included in the total number of common shares issued and outstanding. During the nine month periods ended September 30, 2019 and 2018, the Company granted 662,740 RSAs and 980,851 RSAs, respectively.

Non-Qualified Stock Options. The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. There were 25,000 of non-qualified stock option awards granted to a non-employee as compensation for investor relations services during the nine month period ended September 30, 2019.

Restricted Stock Award Activity

A summary of RSA activity as of September 30, 2019 and 2018, and changes during the nine month periods ended September 30, 2019 and 2018 are set forth below:

	2019				2018
NON-VESTED AWARDS	(Unaudited)
Non-vested awards outstanding, January 1,		300,000				-
Granted (+)		662,740	(1	)		980,851	(1	)
Cancelled (-)		50,000	(2	)		-
Vested (-)		405,240	(3	)		680,851	(1	)
Non-vested awards outstanding, September 30,		507,500				300,000
Weighted-average remaining contractual life (in years)		8.24				0.8
Unamortized RSA compensation expense	$	182,586			$	153,418
Aggregate intrinsic value of RSAs non-vested, September 30	$	157,325			$	138,000
Aggregate intrinsic value of RSAs vested, September 30	$	171,867			$	320,000

(1) During the nine month period ended September 30, 2019, the Company granted 662,740 RSAs, of which i) 238,572 of RSAs were awarded to members of the Company’s board of directors as part of their annual board retainer fee that had a grant date fair value of $100,200 and vested during the period, and ii) 424,168 of RSAs were awarded to key employees tied to the attainment of certain financial goals as outlined by the Company’s Compensation Committee of the Board of Directors that had a grant date fair value of $254,501. During the nine month period ended September 30, 2018, the Company granted 980,851 RSAs, of which i) 300,000 of RSAs were awarded as part of additional compensation plan to align key employees with the Company’s long term financial goals, and ii) 680,851 were awarded to members of the Company’s board of directors as part of their annual board retainer fee and vested during the period.

(2) There were 50,000 RSAs that were cancelled during the nine month period ended September 30, 2019. There were no RSAs cancelled or expired during the nine month period ended September 30, 2018.

(3) During the nine month period ended September 30, 2019, 405,240 RSAs vested.

Non-Qualified Stock Option Award Activity

A summary of stock option activity as of September 30, 2019 and 2018, and changes during the nine month periods ended September 30, 2019 and 2018 are set forth below:

	2019						2018
					Weighted						Weighted
					Average						Average
					Grant Date						Grant Date
NON-VESTED AWARDS	Shares				Fair Value		Shares				Fair Value
	(Unaudited)
Non-vested balances, January 1,		2,067,503			$	0.36		2,685,004			$	0.35
Granted (+)		25,000	(1	)	$	0.15		125,000	(1	)	$	0.25
Cancelled (-)		80,001	(2	)	$	0.34		50,000	(2	)	$	0.32
Vested/Excercised (-)		837,497			$	0.34		312,500	(3	)	$	0.26
Non-vested balances, September 30,		1,175,005			$	0.37		2,447,504			$	0.35

	2019						2018
					Weighted						Weighted
					Average						Average
OUTSTANDING AND EXERCISABLE AWARDS	Shares				Exercise Price		Shares				Exercise Price
	(Unaudited)
Awards outstanding, January 1,		4,013,334			$	0.58		4,173,334			$	0.60
Granted (+)		25,000	(1	)	$	0.41		125,000	(1	)	$	0.50
Cancelled (-)		530,000	(2	)	$	0.55		110,000	(2	)	$	1.11
Exercised (-)		-				-		50,000	(3	)	$	0.44
Awards outstanding, September 30,		3,508,334			$	0.59		4,138,334			$	0.58
Awards vested and expected to vest,
September 30,		3,165,153			$	0.59		3,547,472			$	0.58
Awards outstanding and exercisable,
September 30,		2,333,329			$	0.58		1,690,830			$	0.56

(1) During the nine month period ended September 30, 2019, there were non-qualified stock option (NQSO) grants of 25,000 granted to a non-employee as compensation for investor relations services. This stock award grant was valued using a Black-Scholes model that assumed a 1-year vesting period, 2-year option term, a risk free rate of 2.5%, volatility of 64.6%, no assumed dividend yield, and a forfeiture rate estimate of 1.2%. During the nine month period ended September 30, 2018, there were non-qualified stock option (NQSO) grants of 125,000, as further described below:

● Employees. During the nine month period ended September 30, 2018, the Company granted 75,000 non-qualified stock options as part of an additional compensation to align a key employee with the Company’s long term financial goals. This stock award grant was valued using a Black-Scholes model that assumed a 3-year vesting period, 5-year option term, a risk free rate of 2.7%, volatility of 66.7%, no assumed dividend yield, and a forfeiture rate estimate of 4.8%.

● Non-Employees. During the nine month period ended September 30, 2018, the Company granted 50,000 non-qualified stock options as payment for a portion of the annual retainer paid to its public investor relations firm. This stock award grant was valued using a Black-Scholes model that assumed a 1-year vesting period, 2-year option term, a risk free rate of 2.6%, volatility of 69.5%, no assumed dividend yield, and a forfeiture rate estimate of 10.3%.

(2) During the nine month period ended September 30, 2019, there were 530,000 NQSOs that were cancelled, of which 80,001 were unvested, related to voluntary employee terminations.

(3) The total intrinsic value of stock options exercised during the nine month period ended September 30, 2018 was approximately $5,500.

The weighted-average remaining contractual life of the non-qualified stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2019 were 2.3 years, 1.9 years and 1.9 years, respectively.

There was no intrinsic value associated with options outstanding, exercisable and expected to vest as of September 30, 2019, as the stock price was below the lowest option exercise price. Aggregate intrinsic value represents total pretax intrinsic value (the difference between WidePoint’s closing stock price on September 30, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2019. The intrinsic value will change based on the fair market value of WidePoint’s stock.

Share-Based Compensation Expense

Share-based compensation (including restricted stock awards) represents both stock options based expense and stock grant expense. The following table sets forth the composition of stock compensation expense included in general and administrative expense for the periods then ended:

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30				SEPTEMBER 30
	2019		2018		2019		2018
	(Unaudited)
Restricted stock compensation expense	$	91,826	$	202,664	$	289,426	$	370,582
Non-qualified option stock compensation expense		71,625		70,073		247,402		222,493
Total share-based compensation before taxes	$	163,451	$	272,737	$	536,828	$	593,075

At September 30, 2019, the Company had approximately $335,186 of total unamortized share-based compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over the weighted average remaining period of 1 year.