Blüm Holdings Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2018

2016 Equity Incentive Plan

In the first quarter of 2016, the Company adopted the 2016 Equity Incentive Plan. The following table contains information about the 2016 Equity Incentive Plan as of September 30, 2018:

	Awards Reserved for Issuance		Awards Issued		Awards Available for Grant

2016 Equity Incentive Plan		30,000,000		2,552,731		27,447,269

Stock Options

The following table summarizes the Company’s stock option activity and related information for the three and nine months ended September 30, 2018:

	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 Janury 1, 2018		1,177,732		$	2.17

Options Granted		800,000		$	4.41
Options Exercised		-			-
Options Forfeited		-			-
Options Expired		-			-
Options Outstanding as of March 31, 2018		1,977,732		$	3.08	9.1 Years	$	522,600
Options Exercisable as of Mach 31, 2018		659,774		$	2.20	8.5 Years	$	391,950

Options Granted		66,667		$	3.75
Options Exercised		-			-
Options Forfeited		-			-
Options Expired		-			-
Options Outstanding as of June 30, 2018		2,044,399		$	3.10	8.89 Years	$	361,800
Options Exercisable as of June 30, 2018		828,941		$	2.38	8.42 Years	$	301,500

Options Granted		945,000		$	2.02
Options Exercised		-			-
Options Forfeited		-			-
Options Expired		(436,668	)		2.36
Options Outstanding as of September 30, 2018		2,552,731		$	2.83	9.16 Years	$	258,666
Options Exercisable as of September 30, 2018		819,409		$	2.66	8.51 Years	$	189,861

The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $2.08 on September 30, 2018, and the exercise price of options, multiplied by the number of options. As of September 30, 2018, there was $4,525,434 total unrecognized stock-based compensation. Such costs are expected to be recognized over a weighted-average period of approximately 1.73 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 assumptions were used to calculate stock-based compensation for issuances during the nine months ended September 30, 2018.

	September 2018
Expected Term (years)	6 - 6.5 Years
Volatility	124.4-128.0%
Risk-Free Interest Rate	2.5-2.9%
Dividend Yield		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 Three Months Ended
	September 30, 2018				September 30, 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		945,000	$	690,686		132,051	$	234,580

Stock Grants:
Employees (Common Stock)		14,744		36,959		49,815		170,148
Employees (Series A Preferred Stock)		4		8		-		-
Employees (Series B Preferred Stock)		-		-		-		-
Directors (Common Stock)		49,500		99,991		-		-
Non–Employee Consultants (Common Stock)		5,700		9,858		135,172		445,068

Total Stock–Based Compensation Expense			$	837,502			$	849,796

	For the Nine Months Ended
	September 30, 2018				September 30, 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		1,811,667	$	1,645,384		682,051	$	439,599

Stock Grants:
Employees (Common Stock)		188,138		589,951		158,867		490,880
Employees (Series A Preferred Stock)		4		8		-		-
Employees (Series B Preferred Stock)		-		-		40,000		1,035,406
Directors (Common Stock)		49,500		99,991		81,061		221,973
Non–Employee Consultants (Common Stock)		49,982		133,587		325,772		1,036,427

Total Stock–Based Compensation Expense			$	2,468,921			$	3,224,285