Note 11 – Stock-Based Compensation, Restricted Stock and Stock Options

On December 22, 2022, the Company adopted its 2022 Long-Term Incentive Plan (the “2022 Plan”). Under the 2022 Plan, there are 4,200,000 shares of the Company’s common stock available for issuance and the 2022 Plan has a termination date of October 31, 2032.

The available shares in the 2022 Plan will automatically increase on the first trading day in January of each calendar year during the term of 2022 Plan, commencing with January 2023, by such number of shares of common stock as are necessary so that the total number of shares reserved for issuance under the 2022 Plan shall be equal to 19.9% of the total number of outstanding shares of common stock, determined on a fully diluted basis as of the applicable trading date (the “Stipulated Percentage”); (b) our Board of Directors may act prior to January 1st of a given calendar year to provide that (i) there will be no such automatic annual increase in the number of shares reserved for issuance under the 2022 Plan or (ii) the increase in the number of shares for such calendar year will be a lesser number of shares than necessary to maintain the Stipulated Percentage of shares reserved for issuance under the 2022 Plan; and (c) unless an increase in shares reserved for issuance under the 2022 Plan in excess of the Initial Share Limit has been approved by our shareholders, the maximum number of shares of common stock that may be delivered pursuant to incentive stock options shall not exceed the Initial Share Limit or, if greater, the number of shares of common stock subsequently approved by the requisite vote of our shareholders entitled to vote thereon.

On December 16, 2020, the Company adopted its 2020 Long-Term Incentive Plan (the “2020 Plan”). Under the 2020 Plan, there are 5,333,333 shares of the Company’s common stock available for issuance and the 2020 Plan has a term of 10 years. The available shares in the 2020 Plan will automatically increase on the first trading day in January of each calendar year during the term of this Plan, commencing with January 2021, by an amount equal to the lesser of (i) five percent (5%) of the total number of shares of common stock issued and outstanding on December 31 of the immediately preceding calendar year, (ii) 1,000,000 shares of common stock or (iii) such number of shares of common stock as may be established by the Company’s Board of Directors.

The Company grants equity-based compensation under its 2020 Plan and its 2016 Equity Incentive Plan (the “2016 Plan”). The 2020 Plan and 2016 Plan allows the Company to grant incentive and nonqualified stock options, and shares of restricted stock to its employees, directors and consultants. On June 14, 2019, the Board of Directors of the Company approved increasing the number of shares allocated to the Company’s 2016 Equity Incentive Plan from 5,500,000 to 7,333,333.

Under the 2016 Plan and the 2020 Plan, upon the exercise of stock options and issuance of fully vested restricted common stock, shares of common stock may be withheld to satisfy tax withholdings. The Company intends to net settle certain employee options to ensure adequate authorized shares under the Incentive Plan.

Stock-based compensation:

The Company recognized total expenses for stock-based compensation during the year ended December 31, 2022 and the nine months ended December 31, 2021, which are included in the accompanying statements of operations, as follows (in thousands):

Restricted stock units:

A summary of the Company’s restricted stock activity during the year ended December 31, 2022 is as follows:

During the year ended December 31, 2022, the Company granted 676,350 restricted stock units (“RSUs”) to employees and members of its board of directors with a fair value of approximately $0.9 million. Included in the RSUs granted during 2022, 33,332 RSUs were exchanged for 33,332 cancelled stock options. The cancellation of the stock options and the issuance of the RSUs was accounted for as a modification of the equity awards, and during the year ended December 31, 2022, the Company recognized incremental stock-based compensation of $0.1 million.

During the year ended December 31, 2022, the Company accelerated the vesting of 423,779 RSUs. The accelerated vesting was accounted for as a modification of the equity awards, and during the year ended December 31, 2022 the Company reversed $0.4 million of stock-based compensation related to the incremental fair value of the awards.

During the nine months ended December 31, 2021, the Company granted 800,000 restricted stock units with a fair value of approximately $4.1 million, in exchange for 800,000 restricted stock awards issued to an officer of the Company and a consultant. The fair value and vesting terms of the restricted stock units are identical to the terms of the restricted stock awards, and therefore, no incremental stock-based compensation has been recognized during the nine months ended December 31, 2021.

During the nine months ended December 31, 2021, the Company granted 400,000 restricted stock units with a fair value of approximately $1.6 million to its Chief Financial Officer.

During the year ended December 31, 2022, the Company recognized stock-based compensation of approximately $1.6 million, related to restricted stock. As of December 31, 2022, unrecognized stock-based compensation totaled approximately $0.3 million, which is expected to be recognized over a weighted-average period of one year.

Restricted stock awards:

During the nine months ended December 31, 2021, 66,666 shares of the Company’s restricted stock awards vested. During the nine months ended December 31, 2021, the Company exchanged 88,888 shares of its vested restricted stock awards and 711,112 of its unvested restricted stock awards for restricted stock units. (See Restricted stock units).

Stock Options:

The Company provides stock-based compensation to employees, directors and consultants under both the 2016 and 2020 Plans. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The risk-free interest rate is determined by referencing the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

During the year ended December 31, 2022, the Company granted 832,500 options to purchase shares of the Company’s common stock to members of the Company’s Board of Directors, employees and consultants. The options have a fair value of approximately $0.3 million. During the nine months ended December 31, 2021, the Company granted 1,442,204 stock options with a fair value of approximately $5.1 million. The following was used in determining the fair value of stock options granted during the year ended December 31, 2022 and the nine months ended December 31, 2021.

A summary of activity under the 2016 and 2020 Plans for the year ended December 31, 2022 is as follows:

During the year ended December 31, 2022, the Company cancelled 977,638 stock options with a weighted average exercise price of $3.20 per share. Of these stock option cancellations, 33,332 were related to an exchange for restricted stock units (see restricted stock units above) and 944,306 stock options were canceled in connection with employee departures.

During the year ended December 31, 2022 the Company modified the expiration dates of 789,527 vested stock options related to terminated employees. The modification of the equity awards modified the expiration date based on the options original terms. During the year ended December 31, 2022, the Company recognized incremental stock-based compensation of $0.6 million.

During the nine months ended December 31, 2021, the Company granted 1,318,147 options to purchase shares of its common stock with a fair value of approximately $2.4 million to the Company’s Board of Directors, executives and employees. The options vest over a period of one month - 2 years.

During the nine months ended December 31, 2021, the Company granted 124,057 options to purchase shares of its common stock with a fair value of approximately $0.2 million for consulting services.

During the year ended December 31, 2022, the Company recognized stock-based compensation of approximately $0.8 million, related to stock options. As of December 31, 2022, unrecognized stock-based compensation totaled approximately $0.3 million, which is expected to be recognized over a weighted-average period of four months.

Warrants:

A summary of the Company’s warrant (excluding penny warrants) activity during the years ended December 31, 2022 is as follows:

2022 Liability Classified Warrants

October 2022 Financing

On October 19, 2022, the Company issued 21,759,402 warrants in connection with the issuance of its Notes (See Note 5 and Note 9). The warrants have an exercise price of $0.32 per share and expire five years from the issuance date.

2022 Equity Classified Warrants

Hudson Pacific Properties, L.P.

On August 12, 2022, the Company entered into two Purchase Orders (PO’s) with Hudson Pacific Properties, L.P. (“Hudson”) for the purchase of the Company’s Smart Window Inserts™ (“Inserts”). Hudson is a unique provider of end-to-end real estate solutions for tech and media tenants. The PO’s have a value of $85,450 and represent the first orders the Company has received prior to the launch of its Inserts. Delivery and installation are expected to begin in Q2 2023.

On August 12, 2022, as additional consideration for the PO’s, the Company issued a warrant to Hudson to purchase 300,000 shares of the Company’s common stock at $0.75 per share. The warrant has a five-year life and expires on August 12, 2027.

Because Hudson is a customer, the Company accounts for the PO’s and warrants under Accounting Standards Codification (“ASC”) 606 Revenue Recognition (“ASC 606”). As the performance obligations have not yet been satisfied, the Company has not recognized any revenue during the year ended December 31, 2022.

The Company accounts for the equity-classified warrant as consideration payable to a customer under ASC 606, as it relates to the future purchase of the Inserts. Pursuant to ASC 718 Compensation - Stock Compensation (“ASC 718”), the Company measured the fair value of the warrant using the Black-Scholes valuation model on the issuance date, with the value being recognized as a prepaid asset up to the recoverable value represented by the value of the contract. The fair value of the warrant on the issuance date totaled $161,700, and as of December 31, 2022, the Company recorded a prepaid asset of $85,450, representing the recoverable value from the PO’s, which is included in prepaid and other current assets on the accompanying consolidated balance sheet.

SLOC

In connection with the SLOC, the Company issued a warrant for 200,000 shares of common stock with an exercise price of $2.00, and a total fair value of approximately $223,000. This amount is included in the accompanying consolidated balance sheet as deferred debt issuance costs. During the year ended December 31, 2022 the Company amortized approximately $73,000 of the warrants fair value, which is included in other expense on the accompanying consolidated statement of operations. As of December 31, 2022, deferred debt issuance costs totaled $150,000.

2021 Equity Classified Warrants

During the nine months ended December 31, 2021, the Company issued 775,724 common stock warrants in exchange for consulting and advisory services. The warrants have a fair value of approximately $1.3 million which is recorded as stock-based compensation in the accompanying statement of operations for the nine months ended December 31, 2021.

The Company estimated the fair value of its equity classified warrants using the Black-Scholes pricing model during the year ended December 31, 2022 and the nine months ended December 31, 2021 as follows: