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STOCKHOLDERS’ EQUITY
 12 Months Ended
Dec. 31, 2023
Equity [Abstract]  
STOCKHOLDERS’ EQUITY

NOTE 8 – STOCKHOLDERS’ EQUITY

 

The Company has authorized the issuance of up to 100,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock, $0.0001 par value, of which 5,000 shares are designated as Series B Convertible Preferred Stock, 1,610,000 are designated as Series A Preferred Stock and 3,385,000 shares of preferred stock remain undesignated.

 

On June 8, 2021, the Company filed the 2021 Shelf. Under the 2021 Shelf at the time of effectiveness, the Company originally had the ability to raise up to $150 million by selling common stock, preferred stock, debt securities, warrants and units. In conjunction with the 2021 Shelf, the Company also entered into the ATM Sales Agreement whereby the Company may offer and sell, from time to time, shares of common stock. As of December 31, 2023, the Company had $53.3 million available under the ATM Sales Agreement and $32.0 million available under the 2021 Shelf.

 

Series A Preferred Stock

 

In September 2021, the Company entered into the Preferred Underwriting Agreement and the Common Underwriting Agreement with B.Riley. Pursuant to the Preferred Underwriting Agreement, the Company agreed to sell 1,400,000 shares of its Series A Preferred Stock under the Preferred Stock Offering. The option was not exercised. Pursuant to the Common Underwriting Agreement, the Company agreed to sell to B. Riley 3,833,334 Common Shares under the Common Stock Offering. The offerings, closed on October 4, 2021. Net proceeds after deducting the underwriting discounts and commissions, the structuring fee and estimated offering expenses payable by the Company, but before repayment of debt, from the Offerings was approximately $55.3 million.

 

The Series A Preferred Stock ranks senior to the Company’s common stock with respect to the payment of dividends and liquidation rights. The Company will pay cumulative distributions on the Series A Preferred Stock, from the date of original issuance, in the amount of $2.21875 per share each year, which is equivalent to 8.875% of the $25.00 liquidation preference per share. Dividends on the Series A Preferred Stock will be payable quarterly in arrears, on or about the 15th day of January, April, July and October of each year. The first dividend on the Series A Preferred Stock sold in this offering was declared on December 23, 2021 to holders of record as of January 4, 2022 and was paid on January 14, 2022.

 

Dividends declared and paid on the Series A Preferred Stock during the year ended December 31, 2023 are as follows: (1) quarterly dividend declared on March 28, 2023 to holders of record as of April 7, 2023 and was paid on April 17, 2023, (2) quarterly dividend declared on June 27, 2023 to holders of record as of July 7, 2023 and was paid on July 17, 2023, (3) quarterly dividend declared on September 26, 2023 to holders of record as of October 6, 2023 and was paid on October 16, 2023 and (4) quarterly dividend declared on December 26, 2023 to holders of record as of January 5, 2024 and was paid on January 15, 2024.

 

Dividends declared and paid on the Series A Preferred Stock during the year ended December 31, 2022 are as follows: (1) quarterly dividend on the Series A Preferred Stock was declared on March 25, 2022 to holders of record as of April 5, 2022 and was paid on April 15, 2022, (2) quarterly dividend on the Series A Preferred Stock was declared on June 27, 2022 to holders of record as of July 5, 2022 and was paid on July 15, 2022, (3) quarterly dividend on the Series A Preferred Stock was declared on September 27, 2022 to holders of record as of October 7, 2022 and was paid on October 17, 2022 and (4) quarterly dividend on the Series A Preferred Stock was declared on December 27, 2022 to holders of record as of January 6, 2023 and was paid on January 17, 2023. Dividends in the amount of $3.1 million are included in the Company’s results of operations for each of the years ended December 31, 2023 and 2022.

 

 

Holders of the Series A Preferred Stock have no voting rights except in the case of certain dividend nonpayments. If dividends on the Series A Preferred Stock are in arrears, whether or not declared, for six or more quarterly periods, whether or not these quarterly periods are consecutive, holders of Series A Preferred Stock and holders of all other classes or series of parity preferred stock with which the holders of Series A Preferred Stock are entitled to vote together as a single class will be entitled to vote, at a special meeting called by the holders of record of at least 10% of any series of preferred stock as to which dividends are so in arrears or at the next annual meeting of stockholders, for the election of two additional directors to serve on our Board until all dividend arrearages have been paid. If and when all accumulated dividends on the Series A Preferred Stock for all past dividend periods shall have been paid in full, holders of shares of Series A Preferred Stock shall be divested of the voting rights set forth above.

 

The Series A Preferred Stock is perpetual and has no maturity date. No outstanding shares of Series A Preferred Stock have been redeemed. However, the Series A Preferred Stock will be redeemable at our option, in whole or in part, at the following redemption prices, plus any accrued and unpaid dividends up to, but not including, the date of redemption: 1) on and after October 15, 2022 and prior to October 15, 2023, at a redemption price equal to $25.75 per share, 2) on and after October 15, 2023 and prior to October 15, 2024, at a redemption price equal to $25.50 per share, 3) on and after October 15, 2024 and prior to and prior to October 15, 2025 at a redemption price equal to $25.25 per share and 4) on and after October 15, 2025 at a redemption price equal to $25.00 per share. In addition, upon the occurrence of a delisting event or change of control, we may, subject to certain conditions, at our option, redeem the Series A Preferred Stock, in whole or in part within 90 days after the first date on which such delisting event occurred or within 120 days after the first date on which such change of control occurred, as applicable, by paying $25.00 per share, plus any accumulated and unpaid dividends up to, but not including, the redemption date.

 

Upon the occurrence of a delisting event or a change of control, each holder of Series A Preferred Stock will have the right unless we have provided or provide notice of our election to redeem the Series A Preferred Stock, to convert some or all of the shares of Series A Preferred Stock held by such holder into a number of shares of our common stock (or equivalent value of alternative consideration) per share of Series A Preferred Stock, or the “Common Stock Conversion Consideration”. In the case of a delisting event or change of control, pursuant to which shares of common stock shall be converted into cash, securities or other property or assets (the “Alternative Form Consideration”), a holder of shares of Series A Preferred Stock shall receive upon conversion of such shares of Series A Preferred Stock the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to receive upon the delisting event or change of control, had such holder held a number of shares of common stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the delisting event or change of control.

 

Series B Convertible Preferred Stock

 

On August 27, 2020, the Secretary of State of the State of Delaware delivered confirmation of the effective filing of the Company’s Certificate of Designations of the Series B Convertible Preferred Stock, which established 5,000 shares of the Company’s Series B Preferred Stock, having such designations, rights and preferences as set forth therein (the “Series B Designations”).

 

The shares of Series B Preferred Stock have a stated value of $1,000 per share (the “Series B Stated Value”) and are convertible into Common Stock at the election of the holder of the Series B Preferred Stock, at a price of $3.25 per share, subject to adjustment (the “Conversion Price”). Each holder of Series B Preferred Stock shall be entitled to receive, with respect to each share of Series B Preferred Stock then outstanding and held by such holder, dividends at the rate of thirteen percent (13%) per annum (the “Preferred Dividends”).

 

The Preferred Dividends shall accrue and be cumulative from and after the date of issuance of any share of Series B Preferred Stock on a daily basis computed on the basis of a 365-day year and compounded quarterly. The Preferred Dividends are payable only when, as, and if declared by the Board of Directors of the Company (the “Board”) and the Company has no obligation to pay such Preferred Dividends; provided, however, if the Board determines to pay any Preferred Dividends, the Company shall pay such dividends in kind in a number of additional shares of Series B Preferred Stock (the “PIK Shares”) equal to the quotient of (i) the aggregate amount of the Preferred Dividends being paid by the Company in respect of the shares of Series B Preferred Stock held by such holder, divided by (ii) the Series B Issue Price (as defined in the Series B Designations); provided, further, that, at the election of the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding, in their sole discretion, such Preferred Dividends shall be paid in cash or a combination of cash and PIK Shares. Notwithstanding the foregoing, the Preferred Dividends may be paid in cash at the election of the Company if, and only if, (a) the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding consent in writing to the payment of any specific dividend in cash, or (b) at any time following the twenty-four (24) month anniversary of the Closing, (i) the prevailing volume-weighted average price (“VWAP”) of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $15.00 per share (subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events), and (ii) the average trading volume of the Common Stock over the trailing ninety (90)-day period is equal to or greater than 40,000 shares of Common Stock per day, or (c) at any time following the thirty-six (36) month anniversary of the Closing.

 

 

The holders of Series B Preferred Stock rank senior to the Common Stock with respect to payment of dividends and rights upon liquidation and will vote together with the holders of the Common Stock on an as-converted basis, subject to beneficial ownership limitations, on each matter submitted to a vote of holders of Common Stock (whether at a meeting of stockholders or by written consent). In addition, as further described in the Series B Designations, if at least 30% of the number of shares of Series B Preferred Stock sold at the Closing are outstanding, the Company will not take certain corporate actions without the affirmative vote at a meeting (or the written consent with or without a meeting) of the purchasers holding a majority of the shares of Series B Preferred Stock then outstanding.

 

If at any time following the twelve (12)-month anniversary of the Closing (a) the prevailing VWAP (as defined in the Series B Designations) of the Common Stock over the trailing ninety (90)-day period is equal to or greater than $15.00 per share ($3.00 pre-split) (subject to adjustments for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, reverse stock splits or other similar events), and (b) the average trading volume of the Common Stock over the trailing ninety (90)-day period is equal to or greater than 40,000 shares of Common Stock per day, the Company shall have the right, but not the obligation, in its sole discretion, to elect to convert all, but not less than all, of the then-outstanding shares of Series B Preferred Stock into Common Stock by delivering written notice of such election (the “Forced Conversion Notice”) to the holders of the Series B Preferred Stock within ten (10) Business Days following the satisfaction of the criteria of clauses (a) and (b) above (a “Forced Conversion”). On the Forced Conversion Date (as defined in the Series B Designations), each share of Series B Preferred Stock shall be converted into the number of fully paid and non-assessable shares of Common Stock equal to the quotient of: (x) the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock as of immediately prior to the conversion thereof, including the Preferred Dividends, divided by (y) the Conversion Price of such share of Series B Preferred Stock in effect at the time of conversion. The Forced Conversion Notice shall state (i) the number of shares of Series B Preferred Stock held by such Holder that are proposed to be converted, and (ii) the date on which such Forced Conversion shall occur, which date shall be the thirtieth (30th) day following the date such Forced Conversion Notice is deemed given (a “Forced Conversion Date”).

 

In the event of a Forced Conversion, a holder may elect, in its sole discretion and in lieu of the Forced Conversion, to have each then-outstanding share of Series B Preferred Stock held by such holder be redeemed by the Company (a “Forced Conversion Redemption”) by delivering written notice to the Company (a “Forced Conversion Redemption Notice” and the date such Holder delivers such notice to the Corporation, a “Forced Conversion Redemption Notice Date”) prior to the Forced Conversion Date, which notice shall state (a) the number of shares of Series B Preferred Stock that are to be redeemed, (b) the date on which such Forced Conversion Redemption shall occur, which date shall be the tenth (10th) Business Day following the applicable Forced Conversion Redemption Notice Date (the “Forced Conversion Redemption Date”) and (c) the wire instructions for the payment of the applicable amount owed to such holder. Each share of Series B Preferred Stock that is the subject of a Forced Conversion Redemption shall be redeemed by the Company in cash at a price per share equal to the sum of (1) the Series B Issue Price, plus (2) any accrued but unpaid dividends on such share of Series B Preferred Stock, including the Preferred Dividends (the “Per Share Forced Conversion Redemption Price”).

 

If a sufficient number of shares of Common Stock are not available to effect the conversion of the Series B Preferred Stock outstanding into Common Stock and the exercise of the warrants, each holder shall have the right, in its sole and absolute discretion (in addition to and not to the exclusion of any remedy such holder may have at law or in equity), to require that the Company redeem (an “Optional Redemption”), to the fullest extent permitted by law and out of funds lawfully available therefor, all or any portion of such holder’s Series B Preferred Stock then outstanding by delivering written notice thereof. The Series B Preferred Stock contains certain Change of Control provisions that preclude permanent equity classification.

 

On July 10, 2023, and August 14, 2023, PA001 Holdings, LLC (“PA001 Holdings”), the holder of the Company’s Series B Preferred Stock, elected to convert 2,275 and 1,225 shares, respectively, of the Company’s Series B Preferred Stock into common stock, at a price of $3.25 per share of Series B Preferred Stock, pursuant to the terms of the Securities Purchase Agreement dated August 28, 2020 (“PA001 Securities Purchase Agreement”). The conversion was calculated based on the original issuance price of the Series B Preferred Stock plus all accrued dividends to date. The conversion resulted in 1,010,170 and 550,694 shares of the Company’s common stock issued to PA001 Holdings, on July 12, 2023 and August 15, 2023, respectively. The balance for the Series B Preferred Stock was $0 and $4.6 million as of December 31, 2023 and 2022, respectively.

 

Options and Warrants

 

During the year ended December 31, 2023, the Company issued an aggregate of 74,372 shares of common stock related to the cashless exercise of options.

 

 

During the year ended December 31, 2023, the Company issued an aggregate of 37,500 shares of common stock related to the exercise of options for total proceeds of $94,500.

 

During the year ended December 31, 2023, the Company issued an aggregate of 79,330 shares of common stock related to the cashless exercise of warrants.

 

During the year ended December 31, 2022, the Company issued an aggregate of 90,400 shares of common stock related to the exercise of options for total proceeds of $90,400.

 

During the year ended December 31, 2022, the Company issued an aggregate of 29,691 shares of common stock related to cashless exercise of options.

 

During the year ended December 31, 2022, the Company issued an aggregate of 22,000 shares of common stock related to the exercise of warrants for total proceeds of $38,500.

 

Common Stock

 

Common Stock Transactions During the Year Ended December 31, 2023

 

During the year ended December 31, 2023, the Company issued an aggregate of 978,500 shares of common stock for service, including vested restricted stock.

 

On February 4, 2023, the Company entered into the Cleared First Amendment between the Company and the sellers of Cleared. The Cleared Stock Purchase Agreement was amended to, among other things change the timing of the payment of the purchase price to $460 thousand paid at closing (which has already been paid by the Company), with the remaining amount to be paid in five quarterly installments beginning on or before February 6, 2023 and ending January 15, 2024. The Company issued the following shares of common stock to the sellers of Cleared under the Cleared First Amendment during the year ended December 31, 2023: (1) 337,895 shares on February 6, 2023, (2) 455,319 shares on April 17, 2023, (3) 158,129 shares on July 17, 2023 and (4) 117,583 shares on October 17, 2023. The fair value of the stock issuances under the Cleared First Amendment during the year ended December 31, 2023 was $2.6 million.

 

During the year ended December 31, 2023, the Company sold 1,009,907 shares of common stock under the ATM Sales Agreement and net proceeds received were $6.2 million.

 

During the year ended December 31, 2023, the Company issued 100,000 shares of common stock related to the settlement of the Harborside Advisors LLC v. LifeMD, Inc., Case No. 21-cv-10593, and the Specialty Medical Drugstore, LLC D/B/A GoGoMeds v. LifeMD, Inc., Case No. 21-cv-10599, matters. The shares issued were valued based on the closing price of the Company’s stock, or $5.32, on the date of settlement, July 10, 2023.

 

On July 10, 2023, and August 14, 2023, PA001 Holdings, the holder of the Company’s Series B Preferred Stock, elected to convert 2,275 and 1,225 shares, respectively, of the Company’s Series B Preferred Stock into common stock, at a price of $3.25 per share of Series B Preferred Stock, pursuant to the terms of the PA001 Securities Purchase Agreement. The conversion was calculated based on the original issuance price of the Series B Preferred Stock plus all accrued dividends to date or approximately $5.1 million. The conversion resulted in 1,010,170 and 550,694 shares of the Company’s common stock issued to PA001 Holdings, on July 12, 2023 and August 15, 2023, respectively.

 

On March 21, 2023, in connection with the Company’s closing of the Avenue Credit Agreement, the Company issued Avenue Warrants to purchase $1.2 million of the Company’s common stock at an exercise price of $1.24, subject to adjustments. In addition, Avenue may convert up to $2 million of the $15 million in term loans funded at closing into shares of the Company’s common stock at any time while the loans are outstanding, at a price per share equal to $1.49. On November 15, 2023, Avenue converted $1 million of the principal amount of the outstanding term loans into shares of the Company’s common stock. This resulted in 672,042 shares of common stock issued to Avenue. Additionally on November 15, 2023, Avenue exercised 96,773 of the Avenue Warrants on a cashless basis, resulting in 79,330 shares of the Company’s common stock issued.

 

On December 11, 2023, in connection with the Medifast Collaboration, the Company entered into a stock purchase agreement with Medifast’s wholly-owned subsidiary, Jason Pharmaceuticals, Inc., whereby the Company issued 1,224,425 shares of its common stock, in a private placement at a purchase price of $8.1671 per share, for aggregate proceeds of approximately $10 million.

 

 

Common Stock Transactions During the Year Ended December 31, 2022

 

During the year ended December 31, 2022, the Company issued an aggregate of 306,250 shares of common stock for services rendered.

 

During the year ended December 31, 2022, the Company issued 400,000 shares of common stock related to a legal settlement.

 

WorkSimpli Software Restructuring Transaction (“WSS Restructuring”)

 

Effective January 22, 2021 (the “WSS Effective Date”), the Company consummated the WSS Restructuring. To effect the WSS Restructuring the Company’s wholly-owned subsidiary Conversion Labs PR (now “LifeMD PR”), entered into a series of membership interest exchange agreements, pursuant to which, Conversion Labs PR exchanged that certain promissory note, dated May 8, 2019 with an outstanding balance of $376 thousand (the “CVLB PR Note”), issued by WSS in favor of Conversion Labs PR, for 37,531 newly issued membership interests of WSS (the “Exchange”). Upon consummation of the Exchange the CVLB PR Note was extinguished.

 

Concurrently, in furtherance of the WSS Restructuring, Conversion Labs PR entered into two Membership Interest Purchase Agreements (the “Founding Members MIPAs”) with two founding members of WSS (the “Founding Members”) whereby Conversion Labs PR purchased from the Founding Members an aggregate of 2,183 membership interests of WSS for an aggregate purchase price of $225 thousand, paid in December 2020.

 

In furtherance of the WSS Restructuring, Conversion Labs PR entered into a Membership Interest Purchase Agreement with WSS, (the “CVLB PR MIPA”), pursuant to which Conversion Labs PR purchased 12,000 membership interests of WSS for an aggregate purchase price of $300 thousand.

 

Following the consummation of the WSS Restructuring, Conversion Labs PR increased its ownership of WSS from 51% to approximately 85.58% on a fully diluted basis. WSS entered into an amendment to its operating agreement (the “WSS Operating Agreement Amendment”) to reflect the change in ownership.

 

Concurrently with the WSS Restructuring, Conversion Labs PR entered into option agreements with Sean Fitzpatrick (the “Fitzpatrick Option Agreement”) and Varun Pathak (the “Pathak Option Agreement” together with Fitzpatrick Option Agreement the “Option Agreements”), pursuant to which Conversion Labs PR granted options to purchase membership interest units of WSS.

 

The Fitzpatrick Option Agreement grants Sean Fitzpatrick the option to purchase 10,300 membership interest units of WSS for an exercise price of $1.00 per membership interest unit. The Fitzpatrick Options vest in accordance with the following (i) 3,434 membership interests upon WSS achieving $2.5 million of gross sales in any fiscal quarter (ii) 3,434 membership interests upon WSS achieving $4.0 million of gross sales in any fiscal quarter, and (iii) 3,434 membership interests upon WSS achieving $8.0 million of gross sales with a ten percent (10%) net profit margin in any fiscal quarter.

 

The Pathak Option Agreement grants Varun Pathak the option to purchase 2,100 membership interest units of WSS for an exercise price of $1.00 per membership interest unit. The Pathak Options vest in accordance with the following (i) 700 membership interests upon WSS achieving $2.5 million of gross sales in any fiscal quarter (ii) 700 membership interests upon WSS achieving $4.0 million of gross sales in any fiscal quarter, and (iii) 700 membership interests upon WSS achieving $8.0 million of gross sales with a ten percent (10%) net profit margin in any fiscal quarter.

 

WorkSimpli Software Capitalization Update

 

On September 30, 2022, Sean Fitzpatrick and Varun Pathak exercised their options to purchase 10,300 and 2,100 membership interest units, respectively, of WorkSimpli for an exercise price of $1.00 per membership interest unit under the Option Agreements. Following the exercise of the Option Agreements, Conversion Labs PR decreased its ownership interest in WorkSimpli from 85.58% to 73.64%. Effective March 31, 2023, the Company redeemed 500 membership interest units in WorkSimpli. Following the retirement, Conversion Labs PR’s ownership interest in WorkSimpli increased to 74.06%. On June 30, 2023, WorkSimpli’s Chief Operating Officer, exercised her option agreement (the “WorkSimpli COO Option Agreement”) to purchase 889 membership interest units of WorkSimpli for an exercise price of $1.00 per membership interest unit. Following the exercise of the WorkSimpli COO Option Agreement, Conversion Labs PR decreased its ownership interest in WorkSimpli from 74.06% to 73.32%.

 

 

On June 30, 2023, WorkSimpli declared a cash dividend in the amount of $22.40 per membership interest unit to all unit holders of record as of June 30, 2023 and was paid on July 3, 2023. On July 31, 2023, WorkSimpli declared a cash dividend in the amount of $11.20 per membership interest unit to all unit holders of record as of July 28, 2023 and was paid on August 1, 2023. On August 31, 2023, WorkSimpli declared a cash dividend in the amount of $16.80 per membership interest unit to all unit holders of record as of August 30, 2023 and was paid on September 1, 2023. On September 30, 2023, WorkSimpli declared a cash dividend in the amount of $14.00 per membership interest unit to all unit holders of record as of September 30, 2023 and was paid on October 5, 2023. On October 31, 2023, WorkSimpli declared a cash dividend in the amount of $11.20 per membership interest unit to all unit holders of record as of October 31, 2023 and was paid on November 8, 2023. On December 31, 2023, WorkSimpli declared a cash dividend in the amount of $13.44 per membership interest unit to all unit holders of record as of January 5, 2024 and was paid on January 5, 2024. The total dividends declared to noncontrolling interest holders was $2.1 million for the year ended December 31, 2023 and is included in the Company’s results of operations for the year ended December 31, 2023.

 

Stock Options

 

2020 Equity Incentive Plan (the “2020 Plan”)

 

On January 8, 2021, the Company approved the 2020 Plan. Approval of the 2020 Plan was included as Proposal 1 in the Company’s definitive proxy statement for its Special Meeting of Stockholders filed with the Securities and Exchange Commission on December 7, 2020. The 2020 Plan is administered by the Compensation Committee of the Board and initially provided for the issuance of up to 1,500,000 shares of Common Stock. The number of shares of Common Stock available for issuance under the Plan automatically increases by 150,000 shares of Common Stock on January 1st of each year, for a period of not more than ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030. Awards under the 2020 Plan can be granted in the form of stock options, non-qualified and incentive options, stock appreciation rights, restricted stock, and restricted stock units.

 

On June 24, 2021, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by 1,500,000 shares. As of January 1, 2022, the Plan provided for the issuance of up to 3,300,000 shares of Common Stock.

 

On June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the 2020 Plan to increase the maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan by 1,500,000 shares. As of December 31, 2023, the Plan provided for the issuance of up to 4,950,000 shares of Common Stock. Remaining authorization under the 2020 Plan was 61,611 shares as of December 31, 2023.

 

The forms of award agreements to be used in connection with awards made under the 2020 Plan to the Company’s executive officers and non-employee directors are:

 

● Form of Non-Qualified Option Agreement (Non-Employee Director Awards)
● Form of Non-Qualified Option Agreement (Employee Awards); and
● Form of Restricted Stock Award Agreement.

 

Previously, the Company had granted service-based stock options and performance-based stock options separate from this plan.

 

During the year ended December 31, 2023, the Company issued an aggregate of 249,500 stock options to employees under the 2020 Plan and the prior plan. These stock options have contractual terms of 4 – 6.5 years and vest in increments which fully vest the options over a two-to-three-year period, dependent on the specific agreements’ terms.

 

 

A summary of outstanding options activity under our 2020 Plan is as follows:

 

  

Options Outstanding

Number of Shares

   Exercise Price
per Share		  

Weighted Average

Remaining

Contractual Life

  

Weighted Average

Exercise Price per Share

 
                 
Balance, December 31, 2021   2,063,500   $4.57 – 21.02    8.04 years   $9.41 
Granted   169,500    2.30 – 13.74    3.78 years    6.12 
Exercised   -                
Cancelled/Forfeited/Expired   (448,413)   3.68 – 13.74    7.99 years    7.66 
Balance at December 31, 2022   1,784,587   $2.30 – 21.02    6.95 years   $9.54 
Granted   109,500    1.84 – 7.44    3.86 years    3.50 
Exercised   (37,500)   2.52    2.70 years    2.52 
Cancelled/Forfeited/Expired   (1,129,698)   2.30 – 21.02    6.62 years    10.12 
Balance at December 31, 2023   726,889   $1.84 – 13.74    4.93 years   $8.08 
                     
Exercisable at December 31, 2022   1,185,153   $2.30 – 21.02    7.64 years   $9.62 
Exercisable at December 31, 2023   604,758   $1.84 – 13.74    6.23 years   $8.44 

 

The total fair value of the options granted during the year ended December 31, 2023 was $324 thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 4 years, volatility of 119.16% – 133.67%, and risk-free rate of 0.82% – 3.96%. Total compensation expense under the 2020 Plan options above was $4.5 million and $5.3 million for the years ended December 31, 2023 and 2022, respectively, with unamortized expense remaining of $1.2 million as of December 31, 2023. As of December 31, 2023, aggregate intrinsic value of vested service-based options outstanding was $1.2 million.

 

A summary of outstanding service-based options activity (prior to the establishment of our 2020 Plan above) is as follows:

 

   

Options Outstanding

Number of Shares

     Exercise Price
per Share		    

Weighted Average

Remaining

Contractual Life

    

Weighted Average

Exercise Price per Share

  
Balance, December 31, 2021     1,658,733     $ 1.00 – 19.61       5.85 years     $ 5.45  
Granted     50,000       4.12       4.01 years       4.12  
Exercised     (149,400 )     1.00 – 2.00               1.23  
Cancelled/Forfeited/Expired     (120,000 )     1.00 – 4.12       3.21 years       3.33  
Balance at December 31, 2022     1,439,333     $ 1.00 – 19.61       5.63 years     $ 6.11  
Granted     140,000       1.00 – 2.00       1.94 years       1.71  
Exercised     (120,000 )     1.00 – 1.50       4.34 years       1.33  
Cancelled/Forfeited/Expired     (335,000 )     1.25 – 19.61       3.90 years       14.09  
Balance at December 31, 2023     1,124,333     $ 1.00 – 11.98       4.60 years     $ 3.69  
                                 
Exercisable December 31, 2022     1,158,764     $ 1.00 – 19.61       5.63 years     $ 5.25  
Exercisable at December 31, 2023     1,090,083     $ 1.00 – 11.98       4.62 years     $ 3.66  

 

The total fair value of the options granted during the year ended December 31, 2023 was $142 thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 6.5 years, volatility of 187.76 – 195.58%, and risk-free rate of 1.21 – 2.26%. Total compensation expense under the above service-based option plan was $1.7 million and $2.1 million for the years ended December 31, 2023 and 2022, respectively, with unamortized expense remaining of $290 thousand as of December 31, 2023. Of the total service-based options exercised during the year ended December 31, 2023, 120,000 options were exercised on a cashless basis, which resulted in 74,372 shares issued. As of December 31, 2023, aggregate intrinsic value of vested service-based options outstanding was $5.2 million.

 

 

A summary of outstanding performance-based options activity is as follows:

 

   

Options Outstanding

Number of Shares

     Exercise Price
per Share		    

Weighted Average

Remaining

Contractual Life

    

Weighted Average

Exercise Price per Share

  
                         
Balance at December 31, 2021     535,000     $ 1.25 – 2.50       5.59 years     $ 1.60  
Granted     150,000       4.12       3.01 years       4.12  
Exercised     -                          
Cancelled/Forfeited/Expired     (150,000 )     4.12       3.01 years       4.12  
Balance at December 31, 2022     535,000     $ 1.25 – 2.50       4.59 years     $ 1.60  
Granted     -                          
Exercised     -                          
Cancelled/Forfeited/Expired     (50,000 )     2.00               2.00  
Balance at December 31, 2023     485,000     $ 1.25 – 2.50       4.13 years     $ 1.56  
                                 
Exercisable December 31, 2022     470,000     $ 1.50 – 2.50       4.58 years     $ 1.61  
Exercisable at December 31, 2023     420,000     $ 1.50 – 2.50       4.20 years     $ 1.56  

 

Total compensation expense under the above performance-based option plan was $0 and $423 thousand for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, aggregate intrinsic value of vested performance options outstanding was $2.8 million.

 

RSUs and RSAs (under 2020 Plan)

 

A summary of outstanding RSUs and RSAs activity under our 2020 Plan is as follows:

 

  

RSU Outstanding

Number of Shares

 
Balance at December 31, 2021   375,375 
Granted   922,500 
Vested   (177,125)
Forfeited   (92,500)
Balance at December 31, 2022   1,028,250 
Granted   3,625,750 
Vested   (674,625)
Cancelled/Forfeited   (785,000)
Balance at December 31, 2023   3,194,375 

 

The total fair value of the 3,625,750 RSUs and RSAs granted was $14.4 million which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense under the above 2020 Plan RSUs and RSAs was $5.4 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively, with unamortized expense remaining of $5.5 million as of December 31, 2023. During the year ended December 31, 2023, 674,625 RSUs and RSAs vested, of which 666,000 RSUs and RSAs were issued.

 

 

RSUs (outside of 2020 Plan)

 

A summary of outstanding RSUs and RSAs activity (outside of our 2020 Plan) is as follows:

 

  

RSU Outstanding

Number of Shares

 
Balance at December 31, 2021   600,000 
Granted   260,000 
Vested   (145,000)
Balance at December 31, 2022   715,000 
Granted   725,000 
Vested   (390,000)
Cancelled/Forfeited   (500,000)
Balance at December 31, 2023   550,000 

 

The total fair value of the 725,000 granted RSUs and RSAs was $2.0 million which was determined using the fair value of the quoted market price on the date of grant. Total compensation expense for RSUs and RSAs outside of the 2020 Plan was $885 thousand and $1.6 million for the years ended December 31, 2023 and 2022, respectively, with unamortized expense remaining of $1.2 million as of December 31, 2023. During the year ended December 31, 2023, 390,000 RSUs and RSAs vested, of which 312,500 RSUs and RSAs were issued.

 

Warrants

 

A summary of outstanding and exercisable warrant activity is as follows:

 

   

Warrants Outstanding

Number of Shares

     Exercise Price per Share    

Weighted Average

Remaining

Contractual Life

    

Weighted Average

Exercise Price per Share

  
Balance at December 31, 2021     3,888,438     $ 1.40 – 12.00       5.85 years     $ 5.59  
Granted     -                          
Exercised     (22,000 )     1.75               1.75  
Cancelled/Forfeited/Expired     (6,800 )     2.00               2.00  
Balance at December 31, 2022     3,859,638     $ 1.40 – 12.00       4.89 years     $ 5.60  
Granted     967,742       1.24       4.22 years       1.24  
Exercised     (96,773 )     1.24       4.22 years       1.24  
Cancelled/Forfeited/Expired     -                          
Balance at December 31, 2023     4,730,607     $ 1.24 – 12.00       3.95 years     $ 4.81  
                                 
Exercisable December 31, 2022     3,836,993     $ 1.40 – 12.00       4.88 years     $ 5.63  
Exercisable December 31, 2023     4,730,607     $ 1.24 – 12.00       3.95 years     $ 4.80  

 

The total fair value of the warrants granted during the year ended December 31, 2023, was $895 thousand, which was determined by the Black-Scholes Pricing Model with the following assumptions: dividend yield of 0%, expected term of 4 years, volatility of 122.6% and risk-free rate of 3.73%. No stock-based compensation expense on the warrants granted during the year ended December 31, 2023 was recorded as the warrants are amortized through debt discount (see Note 7). As noted above, on November 15, 2023, Avenue exercised 96,773 of the Avenue Warrants on a cashless basis, resulting in 79,330 shares of the Company’s common stock issued.

 

Total compensation expense for warrants granted prior to the year ended December 31, 2023 was $18 thousand and $1.6 million for the years ended December 31, 2023 and 2022, respectively, with no unamortized expense remaining as of December 31, 2023. As of December 31, 2023, aggregate intrinsic value of vested warrants outstanding was $18.4 million.

 

Stock-based Compensation

 

During the year ended December 31, 2023, 1,010,000 RSUs and RSAs and 1,022,000 service-based stock options were cancelled and replaced with 2,388,750 RSAs for four executives and eight employees. Incremental compensation cost resulting from the modifications was immaterial to the consolidated financial statements for the year ended December 31, 2023.

 

 

The total stock-based compensation expense related to common stock issued for services, service-based stock options, performance-based stock options, warrants, RSUs and RSAs amounted to $12.5 million and $13.7 million for the years ended December 31, 2023 and 2022, respectively. Such amounts are included in general and administrative expenses in the consolidated statement of operations. Unamortized expense remaining related to service-based stock options, performance-based stock options, warrants, RSUs and RSAs was $8.2 million as of December 31, 2023, which is expected to be recognized through 2026.