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Stock Option Plan and Stock-Based Compensation

6 Months Ended

Jun. 30, 2024

Stock Option Plan And Stock-based Compensation

Stock Option Plan and Stock-Based Compensation

NOTE 11 – Stock Option Plan and Stock-Based Compensation

To calculate the stock-based compensation resulting from the issuance of options, the Company uses the Black-Scholes option pricing model, which is affected by the Company’s fair value of its stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

2023 Equity Incentive Plan

At the special meeting held on March 10, 2023, the KINS stockholders considered and approved, among other things, the Incentive Plan. The Incentive Plan was previously approved, subject to stockholder approval, by KINS’ board of directors. The Incentive Plan became effective immediately upon the closing of the Business Combination. Pursuant to the terms of the Incentive Plan, there are 2,110,500 shares of CXApp Class A Common Stock available for issuance under the Incentive Plan, which is equal to 15% of the aggregate number of shares of CXApp common stock issued and outstanding immediately after the closing of the Business Combination (giving effect to the redemptions).

Employee Stock Options

On February 6, 2024, a total of 705,000 stock options to purchase the Company’s common stock were granted to employees and consultants of the Company. These options vest over a 4-year period. The options have a life of 10 years and an exercise price of $1.20 per option. The stock options were valued using the Black-Scholes option valuation model and the weighted average fair value of the awards granted during the period was determined to be $0.74 per option on the grant date. The fair value of the common stock as of the grant date utilized in the Black-Scholes option valuation model was $1.21 per share.

In June 2024, the Company received a notice for a net exercise of 70,350 options to purchase shares of common stock resulting in the issuance of 12,570 shares of the Company’s Class A Common Stock with par value $0.0001 per share. In accordance with the terms of the Incentive Plan, 51,012 shares were withheld by the Company to cover the exercise price and 6,768 shares were withheld in satisfaction of the taxes required to be paid in connection with the exercise.

See below for a summary of the stock options granted under the Incentive Plan:

Schedule of stock options
	Number of Options			Weighted-average exercise price		Weighted average remaining contractual term (years)		Weighted-Average Fair Value at Grant Date
Options outstanding at January 1, 2024		984,900		$	1.53		8.75	$	0.90
Granted		705,000		$	1.20		9.61	$	0.74
Exercised		(70,350	)	$	1.53
Forfeited		-
Options outstanding at June 30, 2024		1,619,550		$	1.39
Options exercisable at June 30, 2024		422,100		$	1.53

Non-cash stock-based compensation expenses related to stock option were recorded in the financial statements as summarized below:

	Successor								Predecessor
	Three Months Ended June 30, 2024		Six Months Ended June 30, 2024		Three Months Ended June 30, 2023		Period from March 15, 2023 to June 30, 2023		Period from January 1, 2023 to March 14, 2023
Research and development	$	4	$	7	$	-	$	-	$	-
Sales and marketing		16		48		-		-		-
General and administrative		82		267		55		57		158
Total non-cash stock compensation	$	102	$	322	$	55	$	57	$	158

As of June 30, 2024 (Successor), the remaining unrecognized stock compensation expense totaled approximately $398 thousand. This amount will be recognized as expense over the weighted average remaining term of 3.60 years.

The fair value of each employee option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Key weighted-average assumptions used to apply this pricing model for the six months ended June 30, 2024 (Successor) and the period from March 15, 2023 to December 31, 2023 (Successor) were as follows:

Schedule of assumptions used
Risk-free interest rate		3.67% – 4.33%
Expected life of option grants		5.75 – 6.25 years
Expected volatility of underlying stock		61.65%
Dividends assumption		$-

Restricted Stock Units

On January 2024, a total of 47,000 restricted stock units of the Company’s common stock were granted to employees of the Company under the Incentive Plan at various dates.

The fair value of the common stock as of the various grant dates was determined to be $1.25 to $1.38 per restricted stock unit, for a weighted average fair value of $1.29 per restricted stock unit. There was no other activity related to restricted stock units for the six months ended June 30, 2024.

The following summarizes our RSUs transaction activity for six months ended June 30, 2024:

Schedule of RSUs transaction activity
	Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2024		486,165		$	7.80
Granted		47,000		$	1.29
Vested		(80,000	)	$	7.80
Forfeited		-
Outstanding at June 30, 2024		453,165

The total fair value of RSUs vested during the three months ended June 30, 2024 was $889 thousand.

Non-cash stock-based compensation expenses related to restricted stock units for the six months ended June 30, 2024 were recorded in the financial statements as summarized below:


	Six Months ended June 30, 2024
Research and development	$	404
Sales and marketing		206
General and administrative		504
Total non-cash stock compensation	$	1,114

There were no non-cash stock-based compensation expenses related restricted stock units for the period from March 15, 2023 to June 30, 2023 (Successor) and period from January 1, 2023 to March 14, 2023 (Predecessor).

As of June 30, 2024 (Successor), the Company has approximately $721 thousand of unrecognized restricted stock unit compensation to be expensed over a weighted average period of 1.51 years.