Share-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-Based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

13. SHARE-BASED COMPENSATION

The Company accounts for share-based compensation in accordance with ASC 718, Compensation – Stock Compensation. ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options and warrants, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee and non-employee is required to provide service in exchange for the award, usually the vesting period.

Share-based compensation for employees and non-employees is recorded in the Consolidated Statement of Operations as a component of general and administrative expense with a corresponding increase to additional paid-in capital in stockholders’ equity. For employee awards, the Company elected to utilize the simplified method of estimating the expected life of options as allowed by SAB 107. The Company believes this to be a better estimate of the expected life given the lack of historical information. For nonemployee awards, the Company will utilize the stated term of the award. Forfeitures will be accounted for as they occur for both employee and nonemployee awards. Upon exercise or conversion of any share-based payment transaction, the Company will issue shares, generally as new issuances.

As described in Note 12 – Stockholders’ Equity, effective January 21, 2021, the Company enacted the Split of the Company’s common stock. As a result, the Company has given effect to the Split as if it occurred at the beginning of the first period presented for all share-based compensation.

2020 Long-Term Incentive Plan

On April 22, 2020, the Company’s Board of Directors adopted the 2020 Long-Term Incentive Plan (the “2020 Plan”), which was approved by the stockholders on or about May 6, 2020. Employees, officers, directors and consultants that provide services to the Company or one of its subsidiaries may be selected to receive awards under the 2020 Plan. Awards under the 2020 Plan may be in the form of incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards and performance-based awards.

A total of 3,333,334 shares of the Company’s common stock were initially authorized for issuance with respect to awards granted under the 2020 Plan. On June 25, 2021, the stockholders approved the increase of the number of shares of common stock authorized for issuance under the 2020 Plan by an additional 5,000,000 shares. Any shares subject to awards that are not paid, delivered or exercised before they expire or are cancelled or terminated, or fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for other award grants under the 2020 Plan. As of December 31, 2021, 5,547,171 options have been issued under the 2020 Plan, of which 183,334 were forfeited. Any shares forfeited are available for re-issuance. As of December 31, 2021, a total of 2,936,163 shares authorized under the 2020 Plan remained available for award purposes.

The 2020 Plan will terminate on May 1, 2030. The maximum term of options, stock appreciation rights and other rights to acquire common stock under the 2020 Plan is ten years after the initial date of the award.

Restricted Stock Awards

On December 2, 2019, the Company’s Board of Directors granted an aggregate of 633,336 Restricted Stock Awards (“RSAs”) to nine officers and directors at a grant date fair value of $2.46 per share. The original vesting period for these RSAs is as follows: 283,339 were to vest on the one-year anniversary of the grant date; 283,331 were to vest on the two-year anniversary of the original grant date; and 66,666 were scheduled to vest on the three-year anniversary of the original grant date. As of December 31, 2020, 283,339 RSAs had vested. As of December 31, 2021, the remaining unvested RSAs from these awards, totaling 299,997, was scheduled to vest as follows: 233,331 are scheduled to vest on the two-year anniversary of the original grant date; and 66,666 were scheduled to vest on the three-year anniversary of the original grant date.

On January 26, 2021, the Company’s Board of Directors granted an aggregate of 66,667 RSAs to one director at a grant date fair value of $4.50 per share. The vesting period for these RSAs is as follows: 33,334 vest on the one-year anniversary of the grant date and 33,333 vest on the two-year anniversary of the original grant date.

For all RSAs that are currently outstanding, if the recipient’s employment with, engagement by, or service to the Company terminates for any reason (other than due to disability, retirement or death, or termination by employee for “Good Cause” as defined pursuant to a written employment contract) prior to the vesting of all or any portion of the RSAs granted, such RSAs shall immediately be cancelled. If the recipient’s employment with, engagement by, or service to the Company terminates due to the recipient’s death, disability or retirement, or by termination by such employee for “Good Cause” as defined pursuant to a written employment contract, the recipient shall become 100% vested in the RSAs granted as of the date of any such termination. There were no RSAs that were forfeited in the year ended December 31, 2021. For the year ended December 31, 2021, the Company recognized $0.8 million of compensation expense related to RSAs and had unrecognized compensation cost as of December 31, 2021 for RSAs of $0.3 million.

Stock Options

On July 6, 2020, the Company issued replacement options for outstanding VNC options in conjunction with the acquisition of VNC. These options are outside of any equity plan and are for the purchase of an aggregate of 841,837 shares of the Company’s common stock. These options have an exercise price ranging from $0.1497 – $0.8646 per share, vested immediately, and expire on July 6, 2025. The fair value of these options on the grant date was estimated to be $2.2 million.

Also on July 6, 2020, the Company issued options to two employees as share-based compensation under the Company’s 2020 Plan for the purchase of an aggregate of 66,668 shares of the common stock. These options expire on July 6, 2025, have an exercise price of $3.24 per share, and half of these options vested six months from the date of issuance and the remainder vested 12 months from the date of issuance. The fair value of these options on the grant date was estimated to be $59 thousand. Of these, 33,334 options with a weighted average grant date fair value of $0.885 were forfeited during the third quarter of 2020 and 33,334 remain outstanding and vested as of December 31, 2021.

On April 1, 2021, the Board of Directors granted options 2020 Plan to purchase an aggregate 3,212,000 shares of common stock with exercise prices ranging from $2.75 to $3.025 per share and a grant date fair value ranging from $0.961 to $1.042 per share. These options have a three year service period and vest ratably on the first, second and third anniversary of their grant date.

Also, on April 1, 2021, the Board of Directors granted options to purchase an aggregate of 1,025,000 shares of common stock with an exercise price of $2.75 per share. and have a grant date fair value ranging from $0.759 to 0.768 per share. These shares have a two-year service period and vest ratably on the first and second anniversary of their authorization for issuance.

On May 5, 2021, the Board of Directors authorized the issuance of options to purchase an aggregate of 285,000 shares of common stock with an exercise price of $2.75 per share. These shares were in excess of the amount of shares available under the 2020 Plan at that time and were subject to the approval by the Company’s stockholders of an increase to the shares available in the 2020 Plan as noted above. Effective with the approval of the stockholders on June 25, 2021, these shares are considered granted and have a grant date fair value of $0.873 per share. Of these, options to purchase 260,000 shares have a one year service period and vest ratably on the six month and twelve month anniversary of their authorization for issuance and options to purchase 25,000 shares vested immediately upon grant.

On December 29, 2021, the Board of Directors authorized the issuance of options to purchase an aggregate of 150,000 shares of common stock with an exercise price of $1.00 per share, and a grant date fair value of $0.349 per share. These options have a three year service period and vest ratably on the first, second and third anniversary of their grant date.

All options issued during 2021 and 2020 have been valued utilizing the Black-Scholes pricing model using the assumptions listed below. The weighted average grant date fair value of all options issued during the years ended December 31, 2021 and 2020 was $0.92 and $2.55 per share, respectively.

The following table summarizes the assumptions used to estimate the fair value of stock options granted during the year ended December 31, 2021 and 2020:

	2021			2020
Expected dividend yield		0	%		0	%
Expected volatility		63.39	%		38.17	%
Risk-free interest rate		0.480-0.890	%		0.205-0.310	%
Expected life of options		3.250-05.00 years			3.250-05.00 years

The following table represents stock option activity for the year ended December 31, 2021 and 2020:

(Amounts in thousands except per share data)	Number of Options			Weighted- Average Exercise Price per Share		Weighted- Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2020		3,433,515		$	1.59		2.01	$	15,221
Exercisable – December 31, 2020		3,400,181		$	1.58		1.99	$	15,129
Granted		4,672,000			2.76		4.26		—
Exercised		(63,333	)		0.26		3.52		33
Cancelled or Expired		(1,751,674	)		1.84		0.11		—
Outstanding – December 31, 2021		6,290,508		$	2.40		3.70	$	142
Exercisable – December 31, 2021		1,741,841		$	1.36		2.12	$	142

(Amounts in thousands except per share data)	Number of Options			Weighted- Average Exercise Price per Share		Weighted- Average Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2019		2,898,347		$	1.90		1.92	$	2,265
Exercisable – December 31, 2019		2,898,347		$	1.90		1.92	$	2,265
Granted		908,505			0.77		4.34		4,748
Exercised		(6,668	)		1.50		0.72		30
Cancelled or Expired		(366,669	)		2.01		0.84		1,463
Outstanding – December 31, 2020		3,433,515		$	1.59		2.01	$	15,221
Exercisable – December 31, 2020		3,400,181		$	1.58		1.99	$	15,129

Total recognized compensation expense related to the Company’s stock options was $1.2 million and $13 thousand for the year ended 2021 and 2020, respectively. Compensation expense related to stock options is recorded in share-based compensation expense, a component of general and administrative expenses, in the Consolidated Statements of Operations. For year ended December 31, 2021 and 2020, the Company has unrecognized compensation expense related to options of $3.0 million and $17 thousand, respectively. As of December 31, 2021, the Company is expected to recognize this compensation expense over the next 2.25 years.

Restricted Stock Awards

There were no RSAs that were forfeited in the year ended December 31, 2021 or 2020. For the years ended December 31, 2021 and 2020, the Company recognized a total of $0.8 and $0.7 million, respectively, of compensation expense related to all RSAs which was recorded as share-based compensation expense, a component of general and administrative expenses, in the Consolidated Statement of Operations. Unrecognized compensation cost for RSAs totaled $0.3 and $0.8 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021, the Company is expected to recognize this compensation expense over the next 1.25 years. See Note 1 – Description of Business and Basis of Presentation for information about the shares issued in connection with the formation of ComSovereign.

Warrants

On April 13, 2020, the Company issued warrants to purchase an aggregate of 33,342 shares of the Company’s common stock. The warrants were issued as compensation to a vendor and had no vesting requirements. The warrants have an exercise price of $3.60 per share and an expiration date of April 12, 2025. None of these warrants were exercised during the years ended December 31, 2021 or 2020.

On April 29, 2020, the Company issued a warrant to purchase 52,910 shares of the Company’s common stock. The warrant was issued in conjunction with the sale of the Company’s 12.5% OID Convertible Note and had no vesting requirements. The warrant has an exercise price of $2.97 per share and an expiration date of April 29, 2025. In connection with this transaction and as a placement fee to an unrelated third-party, the Company also issued warrants to purchase an aggregate of 9,262 shares of the Company’s common stock. The warrants have an exercise price of $2.97 per share and an expiration date of April 29, 2025. None of these warrants were exercised during the years ended December 31, 2021 or 2020.

On June 8, 2020, the Company issued warrants to purchase an aggregate of 8,000 shares of the Company’s common stock at an exercise price of $3.00 per share to a vendor in conjunction with a consulting agreement. These warrants expire on June 7, 2023. None of these warrants were exercised during the years ended December 31, 2021 or 2020. 

On July 6, 2020, and in conjunction with the acquisition of VNC, the Company issued replacement warrants for outstanding VNC warrants to purchase an aggregate of 578,763 shares of the Company’s common stock. The warrants have an exercise price of ranging from $0.1497 to $0.7212 per share and an expiration date of July 6, 2025. 18,572 of these warrants were exercised during the year ended December 31, 2020, and none of these warrants were exercised during the year ended December 31, 2021.

On July 7, 2020, the Company issued warrants to purchase an aggregate of 96,668 shares of the Company’s common stock. The warrants were issued as part of a convertible debenture offering with no vesting requirement, have an exercise price of $3.00 per share, and expire on December 31, 2022. None of these warrants were exercised during the years ended December 31, 2021 or 2020.

On July 7, 2020, the Company issued a warrant to purchase 52,910 shares of the Company’s common stock. The warrant was issued in conjunction with the sale of the Company’s 12.5% OID Convertible Note and had no vesting requirements. The warrant has an exercise price of $2.97 per share and an expiration date of April 29, 2025. In connection with this transaction and as a placement fee to an unrelated third-party, the Company also issued warrants to purchase an aggregate of 9,262 shares of the Company’s common stock. The warrants have an exercise price of $2.97 per share and an expiration date of April 29, 2025. None of these warrants were exercised during the years ended December 31, 2021 or 2020.

On August 21, 2020, the Company issued a warrant to purchase an aggregate of 17,866 shares of the Company’s common stock in conjunction with the sale of the Company’s 13.33% OID Convertible Note. These warrants were issued as payment of a placement fee to an unrelated third-party and had no vesting requirements. The warrant has an initial exercise price of $8.40 per share and an expiration date of August 20, 2025. None of these warrants were exercised during the years ended December 31, 2021 or 2020.

On January 26, 2021, the Company issued warrants to purchase an aggregate of 2,751,556 shares of the Company’s common stock as partial consideration for the debt extinguishments disclosed in Note 9 – Debt Agreements and Note 10 – Related Party Transactions. The warrants have an exercise price of $4.50 per share and an expiration date of January 26, 2026. The issuance date fair value of these warrants was estimated to be $1.597 per share. None of these warrants were exercised during the year ended December 31, 2021.

On January 26, 2021, the Company issued warrants to purchase an aggregate of 100,000 shares of the Company’s common stock as consideration for certain costs related to the First Offering as disclosed in Note 12 – Stockholders’ Equity. The warrants have an exercise price of $4.15 per share and an expiration date of January 21, 2026. The issuance date fair value of these warrants was estimated to be $1.703 per share. None of these warrants were exercised during the year ended December 31, 2021.

On January 26, 2021, the Company issued warrants to purchase an aggregate of 154,216 shares of the Company’s common stock as the Representative’s First Offering Warrants as discussed in Note 12 – Stockholders’ Equity. The Representative’s First Offering Warrants were subject to a lock-up for 180 days from the commencement of sales in the First Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and were non-exercisable for six (6) months after January 21, 2021. The warrants have an exercise price of $5.1875 per share and an expiration date of January 21, 2026. The issuance date fair value of these warrants was estimated to be $1.376 per share. None of these warrants were exercised during the year ended December 31, 2021.

On January 26, 2021, the Company issued warrants to purchase an aggregate of 4,433,734 shares of the Company’s common stock as portion of the Units offered in the Company’s First Offering as disclosed in Note 12 – Stockholders’ Equity. The warrants have an exercise price of $4.50 per share and an expiration date of January 26, 2026. The issuance date fair value of these warrants was estimated to be $1.597 per share. None of these warrants were exercised during the year ended December 31, 2021.

On February 12, 2021, the Company issued warrants to purchase an aggregate of 225,882 shares of the Company’s common stock as the Representative’s Second Offering Warrants as discussed in Note 12 – Stockholders’ Equity. The Representative’s Second Offering Warrants were subject to a lock-up for 180 days from the commencement of sales in the Second Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and were non-exercisable for six (6) months after February 10, 2021. The warrants have an exercise price of $5.3125 per share and an expiration date of February 10, 2026. The issuance date fair value of these warrants was estimated to be $1.918 per share. None of these warrants were exercised during the year ended December 31, 2021.

On May 27, 2021, the Company issued warrants to purchase an aggregate of 1,820,000 shares of the Company’s common stock in conjunction with a debt agreement as discussed in Note 9 – Debt Agreements. These warrants have an exercise price of $4.50, subject to adjustment, a grant date fair value of $0.505 per share, and expire on May 27, 2026. None of these warrants were exercised during the year ended December 31, 2021.

On August 25, 2021, the Company issued warrants to purchase an aggregate of 1,315,789 shares of the Company’s common stock in conjunction with a debt agreement as discussed in Note 9 – Debt Agreements. These warrants have an exercise price of $3.00, subject to adjustment, a grant date fair value of $0.859 per share, and expire on August 25, 2026. None of these warrants were exercised during the year ended December 31, 2021.

On October 4, 2021, and in conjunction with the acquisition of SAGUNA, the Company issued warrants to purchase an aggregate of 1,140,000 shares of the Company’s common stock. The warrants have an exercise price of $2.09 per share, a grant date fair value of $0.667 per share, and an expiration date of April 4, 2026. None of these warrants were exercised during the year ended December 31, 2021.

All warrants are valued utilizing the Black-Scholes pricing model using the assumptions listed below. The weighted average grant date fair value of all warrants issued during the year ended December 31, 2021, was $1.265 per share.

The following table summarizes the assumptions used to estimate the fair value of the warrants granted during the years ended December 31, 2021 and 2020:

	2021			2020
Expected dividend yield		0	%		0	%
Expected volatility		39.94-64.04	%		36.96-41.55	%
Risk-free interest rate		0.420-0.950	%		0.19-0.44	%
Contractual life of warrants		4.0-5.0 years			2.5-5.0 years

The following tables represents warrant activity for the years ended December 31, 2021 and 2020:

(Amounts in thousands except per share data)	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2020		890,416	$	1.46		4.02	$	4,083
Exercisable – December 31, 2020		890,416	$	1.46		4.02	$	4,083
Granted		11,941,177		3.90
Exercised		—		—
Forfeited or Expired		—		—
Outstanding – December 31, 2021		12,831,593	$	3.72		4.13	$	199
Exercisable – December 31, 2021		12,831,593		3.72		4.13		199

(Amounts in thousands except per share data)	Number of Warrants			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding – December 31, 2019		167,846		$	2.85		1.96	$	258
Exercisable – December 31, 2019		167,846		$	2.85		1.96	$	258
Granted		858,983			1.39
Exercised		(113,080	)		0.14
Forfeited or Expired		(23,334	)		15.00
Outstanding – December 31, 2020		890,415		$	1.46		4.02	$	4,083
Exercisable – December 31, 2020		890,415			1.46		4.02		4,083