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Note 12 - Stock-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 12: STOCK-BASED COMPENSATION

A summary of outstanding options as of December 31, 2023 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
$4.01 - $8.00			566,673				6.63			$	7.42				566,673			$	7.42
8.01+			96,125				2.03				25.22				96,125				25.22
			662,798				5.96			$	10.00				662,798			$	10.00

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

$4.01 - $8.00

240,000

6.42

$

7.59

240,000

$

7.59

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 - $4.00

733,334

1.13

$

3.00

-

$

-

		*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, 2022			633,334				3.00				662,910				10.02				240,000			$	7.59
Granted			100,000				3.00				-				-				-				-
Forfeited or expired			-				-				(112	)			162.00				-				-
Balance, December 31, 2023			733,334				3.00				662,798				10.00				240,000			$	7.59

The weighted average remaining contractual life for options exercisable is 6.1 years as of December 31, 2023.

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 160,000 and 80,000 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 targets 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 include 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) was eliminated, and the remaining shares that are available for vesting under the Performance Options (106,667 unvested shares for Mr. Mills and 53,334 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) excluded 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.

(ii) included 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).

The unvested portion of the Performance Options as of December 31, 2022 vested in full effective March 30, 2023 upon confirmation by the Board of Directors of achievement of the performance metrics for the year ended December 31, 2022.

The exercise price of the foregoing options is $7.59 per share, the closing price of the Company’s common stock on the date of issuance (as adjusted by the Company's 1-for-3 reverse stock split in March 2023). The options were issued from the 2014 Stock Incentive Plan.

Issuance of Options

On June 15, 2022, Messrs. Mills and Logan received ten-year options to purchase 333,334 and 200,000 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 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*
																						*Guaranteed*				*Total*
Executive		$	6.00			$	9.00			$	12.00			$	15.00			$	18.00			*Price*				*Shares*
Mills Shares Vested			16,667				33,334				50,000				66,667				83,334				83,334				333,334
Logan Shares Vested			10,000				20,000				30,000				40,000				50,000				50,000				200,000

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

The “Guaranteed Price” has the meaning ascribed to such term in the Merger Agreement.

The exercise price of the New Options is $3.00 per share, which exceeded the closing price of the Company’s common stock on the date of issuance (as adjusted by the Company's 1-for-3 reverse stock split in March 2023). The New Options were issued from the Company’s 2014 Stock Incentive Plan, as amended. An additional 100,000 options with identical market vesting restrictions were issued to non-executives.

The fair value of the options on the grant date varied between $0.63 and $1.11 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 (in years)			2.68
Expected price volatility			123.53	%
Dividend yield			0	%

At the grant date, 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 contingent consideration. As a result of that evaluation of probability, during the year-ended December 31, 2023, the Company recorded $13 of compensation expense. These awards have not yet vested and are subject to actual share price performance through February 2025.

On November 17, 2021, Creative Realities’ Board of Directors updated its director compensation plan to compensate non-officer directors resulting in the Company granting 10-year options to purchase an aggregate of 85,000 shares of its common stock to non-employee directors of the Company under the Company’s 2014 Stock Incentive Plan (the “Plan”). One-third of the options vested immediately, with half of the remaining options vesting at each of the first and second anniversaries of the grant date. The options have an exercise price of $6.63, the market value of the Company’s common stock on the grant date. The fair value of the options on the grant date was $5.23 and was determined using the Black-Scholes model. These values were calculated using the following weighted average assumptions:

Risk-free interest rate			1.60	%
Expected term (in years)			6.25
Expected price volatility			97.78	%
Dividend yield			0	%

On June 1, 2020 the Board of Directors of the Company granted 10-year options to purchase an aggregate of 526,667 shares of its common stock to employees of the Company subject to shareholder approval of an increase in the reserve of shares authorized for issuance under the Company’s 2014 Stock Incentive Plan (the “Plan”). On July 10, 2020, the Company held a special meeting of the Company’s shareholders at which the shareholders approved the amendment to the Plan, which increased the reserve of shares authorized for issuance thereunder to 2,000,000 shares.

The options awarded vest over 3 years and have an exercise price of $7.59, the market value of the Company’s common stock on the grant date. The fair value of the options on the grant date was $5.61 and was determined using the Black-Scholes model. These values were calculated using the following weighted average assumptions:

Risk-free interest rate			0.66	%
Expected term (in years)			6.25
Expected price volatility			89.18	%
Dividend yield			0	%

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 573,334 shares for purchase by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director Stock Option Plan the Company reserved 233,334 shares for purchase by the Company’s employees. There are 3,890 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. Following a 1-for-3 reverse stock split, the shares authorized for issuance under the Company's 2014 Stock Incentive Plan was reduced to 2,000,000. There are 1,632,242 options outstanding under the 2014 Stock Incentive Plan.

Employee Awards

Compensation expense recognized for the issuance of stock options to employees for the years ended December 31, 2023 and 2022 of $383 and $1,689, respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2023, there was $0 and $100 of total unrecognized compensation expense related to unvested share-based awards with time vesting and performance vesting criteria for employees, respectively. Expense related to performance vesting options will be recognized over the next 14 months and will be adjusted for any future forfeitures as they occur.

Non-Employee Awards

Compensation expense recognized for the issuance of stock options, including those options awarded to our Board of Directors, for the years ended December 31, 2023 and 2022 of $150 and $198, respectively, was included in general and administrative expense in the Consolidated Financial Statements. At December 31, 2023, unrecognized compensation expense related to unvested share-based awards with time vesting criteria for non-employee directors was $0.

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 year ended December 31, 2023 and December 31, 2022, the Company issued shares issuable in exchange for services in the amount of $55 and $100, respectively.