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Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

NOTE 13: STOCK-BASED COMPENSATION

A summary of outstanding options is included below:

Time Vesting Options						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
Range of Exercise		Number				Contractual				Exercise				Options				Exercise
Prices between		Outstanding				Life				Price				Exercisable				Price
$0.01 - $1.00			-				-			$	-				-			$	-
$1.01 - $2.00			25,000				7.11			$	1.88				16,667			$	1.88
$2.01+			1,963,675				7.22				4.29				1,320,342			$	3.81
			1,988,675				7.22			$	3.34				1,337,009

Performance Vesting Options						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
Range of Exercise		Number				Contractual				Exercise				Options				Exercise
Prices between		Outstanding				Life				Price				Exercisable				Price
$0.01 - $1.00			-				-			$	-				-			$	-
$1.01 - $2.00			-				-			$	-				-			$	-
$2.01+			720,000				7.67				2.53				240,000			$	2.53
			720,000				7.67			$	2.53				240,000

Market Vesting Options						Weighted
						Average				Weighted								Weighted
						Remaining				Average								Average
Range of Exercise		Number				Contractual				Exercise				Options				Exercise
Prices between		Outstanding				Life				Price				Exercisable				Price
$0.01 - $1.00			1,900,000				2.39			$	1.00				-			$	-
$1.01 - $2.00			-				-			$	-				-			$	-
$2.01+			-				-				-				-			$	-
			1,900,000				2.39			$	1.00				-

		Market Vesting Options								Time Vesting Options								Performance Vesting Options
						Weighted								Weighted								Weighted
						Average								Average								Average
		Options				Exercise				Options				Exercise				Options				Exercise
Date/Activity		Outstanding				Price				Outstanding				Price				Outstanding				Price
Balance, December 31, 2021			-				-				2,068,809			$	3.48				800,000			$	2.53
Granted			1,900,000				1.00				-				-				-				-
Exercised			-				-				-				-				-				-
Forfeited or expired			-				-				(80,134	)			2.79				(80,000	)			2.53
Balance, September 30, 2022			1,900,000				1.00				1,988,675				3.34				720,000			$	2.53

The weighted average remaining contractual life for options exercisable is 7.0 years as of September 30, 2022.

Valuation Information for Stock-Based Compensation

For purposes of determining estimated fair value under FASB ASC 718-10, Stock Compensation, the Company computed the estimated fair values of stock options using the Black-Scholes model.

Amendment to Performance Options

On June 1, 2020, Rick Mills, CEO, and Will Logan, CFO, were issued ten-year options to purchase 480,000 and 240,000 shares of common stock (the “Performance Options”), respectively, which vest in equal installments over a three-year period (2020-2022), subject to satisfying the Company revenue target and EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the applicable year. In each of calendar years 2020, 2021 and 2022, one-third of the total shares may vest (if the revenue and EBITDA targets are met), and the shares that are subject to vesting each year are allocated equally to each of the revenue and EBITDA targets for such year. The Performance Options includes a catch-up provision, where any options that did not vest during a prior year due to the Company’s failure to meet a prior revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target, as applicable, is met in the future year.

On June 15, 2022, the Board approved of an amendment to the Performance Options to provide that the revenue target for the calendar year 2022 set forth therein ($38,000) is eliminated, and the remaining shares that are available for vesting under the Performance Options (320,000 unvested shares for Mr. Mills and 160,000 for Mr. Logan) (including the unvested portions of shares based on the satisfaction of the revenue targets for 2020 and 2021 by virtue of the catch-up provisions in the Performance Options) will fully vest upon the achievement of an updated EBITDA target for calendar year 2022 of $3,600.

The Performance Options state that the calculation of EBITDA set forth in the Performance Options shall be calculated in a form consistent with the Company’s 2022 approved budget, which

(i)

excludes any impact on EBITDA of:

(a) the accounting treatment (including any “mark-to-market accounting”) of the Company’s warrants or the “Guaranteed Consideration” (as defined in the Merger Agreement),

(b) non-recurring transaction expenses associated with the Merger and the capital raising financing activities of the Company to effectuate the Merger, and

(c) any write-down or write-off of any Company inventory of Safe Space Solutions products.

(iii) includes deductions related to any cash or stock bonuses paid or payable to any employees of the Company for services provided in calendar year 2022 (even if such bonuses are actually paid after calendar year 2022), including bonuses paid pursuant to the terms of the 2022 Cash Bonus Plan (as described below) (collectively, the “EBITDA Calculations”).

The exercise price of the foregoing options is $2.53 per share, the closing price of the Company’s common stock on the date of issuance. The options were issued from the 2014 Stock Incentive Plan. The fair value of the options on the grant date was $1.87 and was determined using the Black-Scholes model. These values were calculated using the same weighted average assumptions as the time vesting options issued. Performance against the identified EBITDA target is assessed quarterly by the Company in order to determine whether any compensation expense should be recorded.

During the three and nine months ended September 30, 2022, the Company deemed it probable that the Company would achieve the EBITDA target for calendar year 2022 and recorded compensation expense in the Condensed Consolidated Statement of Operations with respect to these awards of $225 and $624, respectively, net of a benefit of $50 recorded for forfeiture of awards for the nine months ended September 30, 2022. The remaining awards have not yet vested and are subject to actual results for the full calendar year 2022. Should this target not be achieved, amounts recorded as expense in the Condensed Consolidated Statement of Operations would be reversed.

Issuance of New Options

On June 15, 2022, Messrs. Mills and Logan received ten-year options to purchase 1,000,000 and 600,000 shares of common stock, respectively (the “New Options”). The New Options are eligible to vest at any time on or prior to February 17, 2025 if the trailing 10-trading day volume-weighted average price (“VWAP”) of the Company’s common stock, as reported on the Nasdaq Capital Market, exceeds the share price targets below, subject to such executive serving the Company as a director, officer, employee or consultant at such time:

		Share Price Targets
Executive		$2.00				$3.00				$4.00				$5.00				$6.00				Guaranteed Price				Total Shares
Mills Shares Vested			50,000				100,000				150,000				200,000				250,000				250,000				1,000,000
Logan Shares Vested			30,000				60,000				90,000				120,000				150,000				150,000				600,000

Percentage of Shares Vested			5	%			10	%			15	%			20	%			25	%			25	%

The “Guaranteed Price” has the meaning ascribed to such term in the Merger Agreement, which means $6.40 per share, or $7.20 per share if, and only if, certain customers set forth in the Merger Agreement collectively achieve over 85,000 billable devices online at any time on or before December 31, 2022.

The exercise price of the New Options is $1.00 per share, which exceeds the closing price of the Company’s common stock on the date of issuance. The New Options are issued from the Company’s 2014 Stock Incentive Plan, as amended. An additional 300,000 options with identical market vesting restrictions were issued to non-executives during the nine months ended September 30, 2022.

The fair value of the options on the grant date varied between $0.21 and $0.37 per award as determined using the Monte Carlo model. These values were calculated using the following weighted average assumptions:

Risk-free interest rate			3.30	%
Expected term			2.68 years
Expected price volatility			123.53	%
Dividend yield			0	%

At September 30, 2022, the Company evaluated the probability of achieving the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist in conjunction with evaluating the equity guarantee contingent liability. As a result of that evaluation of probability, during the three and nine months ended September 30, 2022 the Company recorded $3 and $4 of compensation expense, respectively. These awards have not yet vested and are subject to actual share price performance through February 2025. Should any target not be achieved, any amounts recorded as expense in the Condensed Consolidated Statement of Operations related to that tranche would be reversed.

Stock Compensation Expense Information

ASC 718-10, Stock Compensation, requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based on estimated fair values. Under the Amended and Restated 2006 Equity Incentive Plan, the Company reserved 1,720,000 shares for purchase by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director Stock Option Plan the Company reserved 700,000 shares for purchase by the Company’s employees. There are 12,001 options outstanding under the 2006 Equity Incentive Plan.

In October 2014, the Company’s shareholders approved the 2014 Stock Incentive Plan, under which 7,390,355 shares were reserved for purchase by the Company’s employees. In August 2018, a special meeting of shareholders was held in which the shareholders voted to amend the Company’s 2014 Stock Incentive Plan to increase the reserve of shares authorized for issuance thereunder, from 7,390,355 shares to 18,000,000 shares. Following a 1-for-30 reverse stock split, the shares authorized for issuance under the Company’s 2014 Stock Incentive Plan was reduced to 600,000. On July 10, 2020, the Company’s shareholders approved an amendment to the Company’s 2014 Stock Incentive Plan to increase the reserve of authorized for issuance thereunder to 6,000,000.

Employee Awards

Compensation expense recognized for the issuance of stock options, inclusive of stock options subject to both performance and market conditions for vesting, for the three and nine months ended September 30, 2022 of $538 and $1,487, respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements. Compensation expense recognized for the issuance of stock options, inclusive of stock options subject to both performance and market conditions for vesting, for the three and nine months ended September 30, 2021 of $331 and $1,177, respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements. Amounts recorded include stock compensation expense for awards granted to directors of the Company in exchange for services at fair value.

As of September 30, 2022, there was approximately $685, $477, and $225 of total unrecognized compensation expense related to unvested share-based employee awards with time vesting, market, and performance vesting criteria, respectively. As of September 30, 2021, there was approximately $1,609 and $1,078 of total unrecognized compensation expense related to unvested share-based awards with time vesting and performance vesting criteria, respectively. Generally, expense related to the time vesting options will be recognized over the next two- and one-half years and will be adjusted for any future forfeitures as they occur. Compensation expense related to performance vesting options will be recognized if it becomes probable that the Company will achieve the identified performance metrics.

Non-Employee Awards

The Company engages certain consultants to perform services in exchange for Company common stock. Shares issued for services were calculated based on the ten (10) day volume weighted average price (“VWAP”) for the last ten (10) days during the month of service provided.

During the three and nine months ended September 30, 2022, the Company issued or accrued shares issuable in exchange for services in the amount of $30 and $100, respectively. During the three and nine months ended September 30, 2021, the Company issued or accrued shares issuable in exchange for services in the amount of $30 and $70, respectively.