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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2020

NOTE 16 – STOCK-BASED COMPENSATION

In January 2020 ACM Shanghai adopted a 2019 Stock Option Incentive Plan (the “Subsidiary Stock Option Plan”) that provides for, among other incentives, the granting to officers, directors, employees of options to purchase shares of ACM Shanghai’s common stock. The fair value of the stock options granted is estimated at the date of grant based on the Black-Scholes option pricing model using assumptions generally consistent with those used for ACM’s stock options. Because ACM Shanghai shares are not currently publicly traded, the expected volatility is estimated with reference to the average historical volatility of a group of publicly traded companies that are believed to have similar characteristics to ACM Shanghai.

ACM’s stock-based compensation consists of employee and non-employee awards issued under the 1998 Stock Option Plan and the 2016 Omnibus Incentive Plan and as standalone options. ACM granted stock options to employees under the 2016 Omnibus Incentive Plan during the nine months ended September 30, 2020. The vesting condition may consist of service period determined by the Board of Directors for s grant or certain performance conditions determined by the Board of Directors for a grant. The fair value of the stock options granted with service period based condition is estimated at the date of grant using the Black-Scholes option pricing model. The fair value of the stock options granted with market based condition is estimated at the date of grant using the Monte Carlo simulation model.

The following table summarizes the components of stock-based compensation expense included in the consolidated statements of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock-Based Compensation Expense:
Cost of revenue	$	44	$	154	$	132	$	213
Sales and marketing expense		237		172		495		252
Research and development expense		193		759		568		939
General and administrative expense		2,305		472		3,128		1,515
	$	2,779	$	1,557	$	4,323	$	2,919

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock-based compensation expense by type:
Employee stock purchase plan	$	2,651	$	1,329	$	3,717	$	1,841
Non-employee stock purchase plan		44		228		356		1,078
Subsidiary option grants		84		-		250		-
	$	2,779	$	1,557	$	4,323	$	2,919

Employee Awards

The following table summarizes the Company’s employee share option activities during the nine months ended September 30, 2020:

	Number of Option Share			Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at December 31, 2019		2,994,063		$	2.59	$	6.77	7.05 years
Granted		778,399			11.98		28.70
Exercised		(327,917	)		1.56		4.33
Expired		-			-		-
Forfeited/cancelled		(40,515	)		4.94		13.04
Outstanding at September 30, 2020		3,404,030		$	4.81	$	11.95	7.14 years
Vested and exercisable at September 30, 2020		2,061,793

As of September 30, 2020 and December 31, 2019, $9,697 and $4,712, respectively, of total unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards for ACM were expected to be recognized over a weighted-average period of 1.96 years and 1.47 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

Non-employee Awards

The following table summarizes ACM’s non-employee stock option activities during the nine months ended September 30, 2020:

	Number of Option Shares			Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at December 31, 2019		1,101,613		$	0.82	$	2.69	5.85 years
Granted		20,000			10.29		25.60
Exercised		(265,029	)		0.91		3.34
Expired		-
Forfeited/cancelled		(111	)		0.30		0.75
Outstanding at September 30, 2020		856,473		$	1.01	$	3.02	5.11 years
Vested and exercisable at September 30, 2020		819,819

As of September 30, 2020 and December 31, 2019, $235 and $406, respectively, of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards were expected to be recognized over a weighted-average period of 0.11 years and 0.23 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

The fair value of options granted to employee and non-employee with a service period based condition is estimated on the grant date using the Black-Scholes valuation model with the following assumptions.

	Nine Months Ended September 30,	Year Ended December 31,
	2020	2019
Fair value of common share(1)	$22.07-85.27	$13.64-16.81
Expected term in years(2)	5.50-6.25	6.25
Volatility(3)	42.17%-48.15%	39.91%-40.35%
Risk-free interest rate(4)	0.27%-0.82%	1.69%-2.46%
Expected dividend(5)	0%	0%

(1)	Fair value of Class A common stock value was the closing market price of the Class A common stock on the grant date.

(2)	Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.

(3)	Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant.

(4)	Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.

(5)	Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.

The fair value of option granted to employee with market based condition is estimated on the grant date using the Monte Carlo simulation model with the following assumptions.

	Nine Months Ended September 30,
	2020
Fair value of common share(1)	$22.07
Expected term in years(2)	9.20 - 9.80
Volatility(3)	45.10%
Risk-free interest rate(4)	2.68%
Expected dividend(5)	0%

(1)	Fair value of Class A common stock value was the closing market price of the Class A common stock on the grant date.

(2)	Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.

(3)	Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant.

(4)	Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.

(5)	Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.

ACM Shanghai Option Grants

The following table summarizes the ACM Shanghai employee stock option activities during the nine months ended September 30, 2020:

	Number of Option Shares in ACM Shanghai			Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at December 31, 2019		-		$	-	$	-		-
Granted		5,869,808			0.22		1.87
Exercised		-			-		-
Expired		-			-		-
Forfeited/cancelled		(330,770	)		0.23		1.87
Outstanding at September 30, 2020		5,539,038		$	0.22	$	1.87	3.76 years
Vested and exercisable at September 30, 2020		-

During the three and nine months ended September 30, 2020, the Company recognized stock-based compensation expense of $84 and $250, respectively, related to stock option grants of ACM Shanghai. As of September 30, 2020, $911 of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to ACM Shanghai stock-based awards were expected to be recognized over a weighted-average period of 2.75 years. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.