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STOCKHOLDERS’ EQUITY
 3 Months Ended
Mar. 31, 2024
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 March 31, 2024, the Company had $53.3 million available under the ATM Sales Agreement and $32.0 million available under the 2021 Shelf. The Company expects to file a new shelf registration statement in 2024 (the “2024 Shelf”).

 

Options and Warrants

 

During the three months ended March 31, 2024, the Company issued an aggregate of 64,113 shares of common stock related to the cashless exercise of options.

 

During the three months ended March 31, 2024, the Company issued an aggregate of 1,268,476 shares of common stock related to the cashless exercise of warrants.

 

During the three months ended March 31, 2024, the Company issued an aggregate of 1,250 shares of common stock related to the exercise of options for total proceeds of approximately $8 thousand.

 

Common Stock

 

Common Stock Transactions During the Three Months Ended March 31, 2024

 

During the three months ended March 31, 2024, the Company issued an aggregate of 943,375 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: (1) 337,895 shares on February 6, 2023, (2) 455,319 shares on April 17, 2023, (3) 158,129 shares on July 17, 2023, (4) 117,583 shares on October 17, 2023 and (5) 95,821 shares on January 16, 2024. The fair value of the stock issuances under the Cleared First Amendment was $3.2 million.

 

Noncontrolling Interest

 

Net income attributed to the non-controlling interest amounted to approximately $119 thousand and $566 thousand for the three months ended March 31, 2024 and 2023, respectively. During both the three months ended March 31, 2024 and 2023, the Company paid distributions to non-controlling shareholders of $36 thousand.

 

 

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 85.6% to 73.6%. 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 74.1%. 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 74.1% to 73.3%.

 

On March 31, 2024, WorkSimpli declared a cash dividend in the amount of $11.20 per membership interest unit to all unit holders of record as of March 31, 2024 and was paid on April 10, 2024. The total dividends declared to noncontrolling interest holders was $267 thousand for the three months ended March 31, 2024, and is included in the Company’s results of operations for the three months ended March 31, 2024.

 

Dividends

 

The Company pays cumulative dividends on its Series A Preferred Stock, 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 are payable quarterly in arrears, on or about the 15th day of January, April, July, and October of each year. During the three months ended March 31, 2024, the Company declared the dividend on March 26, 2024 to holders of record as of April 5, 2024 which was paid on April 15, 2024. During the three months ended March 31, 2023, the Company declared the dividend on March 28, 2023 to holders of record as of April 7, 2023 which was paid on April 17, 2023. The dividends are included in the Company’s results of operations for the three months ended March 31, 2024 and 2023.

 

Stock Options

 

On January 8, 2021, the Company approved the Company’s 2020 Equity and Incentive Plan (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 of Directors (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 2020 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 the amendment and restatement to the 2020 Plan, which amended 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.

 

On June 16, 2022, at the Annual Meeting of Stockholders, the stockholders of the Company approved the second amendment and restatement of the 2020 Plan (the “Amended 2020 Plan”), which amended 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 March 31, 2024, the Amended 2020 Plan provided for the issuance of up to 5,100,000 shares of Common Stock. Remaining authorization under the Amended 2020 Plan, as amended, was 661,611 shares as of March 31, 2024.

 

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 the 2020 Plan. The following is a summary of outstanding options activity under our Amended 2020 Plan for the three months ended March 31, 2024:

 

   Options Outstanding Number of Shares   Exercise Price
per Share		   Weighted Average Remaining Contractual Life   Weighted Average Exercise Price
per Share		 
Balance, December 31, 2023   726,889   $ 1.84 – 13.74    6.11 years   $8.08 
Granted   -    -    -    - 
Exercised   (172,222)   6.00 – 7.50    6.61 years    6.44 
Balance at March 31, 2024   554,667   $1.84 – 13.74    5.63 years   $8.59 
                     
Exercisable at December 31, 2023   604,758   $1.84 – 13.74    6.23 years   $8.44 
Exercisable at March 31, 2024   472,949   $1.84 – 13.74    5.74 years   $9.12 

 

Total compensation expense under the Amended 2020 Plan options above was approximately $669 thousand and $1.2 million for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of $565 thousand as of March 31, 2024. During the three months ended March 31, 2024, 172,222 options were exercised on a cashless basis, which resulted in 62,781 shares issued. As of March 31, 2024, aggregate intrinsic value of vested service-based options outstanding was $1.5 million.

 

The following is a summary of outstanding service-based options activity (prior to the establishment of our 2020 Plan above) for the three months ended March 31, 2024:

   Options Outstanding Number of Shares   Exercise Price
per Share		   Weighted Average Remaining Contractual Life  

Weighted Average Exercise Price

per Share

 
Balance, December 31, 2023   1,124,333   $ 1.00 – 11.98    4.60 years   $3.69 
Granted   -    -    -    - 
Exercised   (4,250)   6.25    6.44 years    6.25 
Balance at March 31, 2024   1,120,083   $ 1.00 – 11.98    4.34 years   $3.68 
                     
Exercisable December 31, 2023   1,090,083   $1.00 – 11.98    4.62 years   $3.66 
Exercisable at March 31, 2024   1,098,893   $ 1.00 – 11.98    4.37 years   $3.67 

 

Total compensation expense under the above service-based option plan was approximately $192 thousand and $643 thousand for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of $99 thousand as of March 31, 2024. Of the total service-based options exercised during the three months ended March 31, 2024, 3,000 options were exercised on a cashless basis, which resulted in 1,332 shares issued. As of March 31, 2024, aggregate intrinsic value of vested service-based options outstanding was $7.4 million.

 

The following is a summary of outstanding performance-based options activity for the three months ended March 31, 2024:

 

   Options Outstanding Number of Shares  

Exercise Price

per Share

   Weighted Average Remaining Contractual Life  

Weighted Average Exercise Price

per Share

 
Balance at December 31, 2023   485,000   $ 1.25 – 2.50    4.13 years   $1.56 
Granted   -    -    -    - 
Balance at March 31, 2024   485,000   $1.25 – 2.50    3.88 years   $1.56 
                     
Exercisable December 31, 2023   420,000   $ 1.50 – 2.50    4.20 years   $1.56 
Exercisable at March 31, 2024   420,000   $1.50 – 2.50    3.95 years   $1.56 

 

No compensation expense was recognized on the performance-based options above for the three months ended March 31, 2024 and 2023, as the performance terms have not been met or are not probable. As of March 31, 2024, aggregate intrinsic value of vested performance options outstanding was $3.7 million.

 

 

RSUs and RSAs (under our Amended 2020 Plan)

 

The following is a summary of outstanding RSUs and RSAs activity under our Amended 2020 Plan for the three months ended March 31, 2024:

 

   RSU Outstanding
Number of Shares		 
Balance at December 31, 2023   3,194,375 
Granted   - 
Vested   (834,125)
Cancelled/Forfeited   (450,000)
Balance at March 31, 2024   1,910,250 

 

Total compensation expense under the Amended 2020 Plan RSUs and RSAs above was approximately $1.4 million and $543 thousand for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of approximately $3.1 million as of March 31, 2024. During the three months ended March 31 2024, 880,875 RSUs and RSAs were issued, which included 834,125 RSUs and RSAs that vested during the three months ended March 31, 2024 and 46,750 RSUs and RSAs that vested previously.

 

RSUs and RSAs (outside of our Amended 2020 Plan)

 

The following is a summary of outstanding RSUs and RSAs activity (outside of our Amended 2020 Plan) for the three months ended March 31, 2024:

 

   RSU Outstanding
Number of Shares		 
Balance at December 31, 2023   550,000 
Granted   - 
Vested   (62,500)
Balance at March 31, 2024   487,500 

 

Total compensation expense for RSUs and RSAs outside of the Amended 2020 Plan was approximately $255 thousand and $305 thousand for the three months ended March 31, 2024 and 2023, respectively, with unamortized expense remaining of approximately $554 thousand as of March 31, 2024. During the three months ended March 31, 2024, 62,500 RSUs and RSAs vested and were issued.

 

Warrants

 

The following is a summary of outstanding and exercisable warrants activity during the three months ended March 31, 2024:

 

   Warrants Outstanding Number of Shares  

Exercise Price

per Share

   Weighted Average Remaining Contractual Life  

Weighted Average Exercise Price

per Share

 
Balance at December 31, 2023   4,730,607   $ 1.24 – 12.00    3.95 years   $4.81 
Exercised   (2,337,500)   4.60 – 5.75    4.41 years    4.91 
Cancelled/Forfeited/Expired   -    -    -    - 
Balance at March 31, 2024   2,393,107   $1.24 – 12.00    3.01 years   $4.71 
                     
Exercisable December 31, 2023   4,730,607   $1.24 – 12.00    3.95 years   $4.80 
Exercisable March 31, 2024   2,393,107   $1.24 – 12.00    3.01 years   $4.69 

 

Total compensation expense on the above warrants for services was approximately $0 and $12 thousand for the three months ended March 31, 2024 and 2023, respectively, with no unamortized expense remaining as of March 31, 2024.

 

 

Stock-based Compensation

 

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 approximately $2.5 million and $2.7 million for the three months ended March 31, 2024 and 2023, respectively. Such amounts are included in general and administrative expenses in the unaudited condensed consolidated statement of operations. Unamortized expense remaining related to service-based stock options, performance-based stock options, warrants, RSUs and RSAs was approximately $4.3 million as of March 31, 2024, which is expected to be recognized through 2026.