Long-term Incentive Plan

12 Months Ended

Dec. 31, 2021

Long-term Incentive Plan

Long-term Incentive Plan

Note 14 – Long-term Incentive Plan

On March 17, 2021, the Company granted options to purchase a total of 5,784,000 shares of common stock to its officers and certain other members of its management team. The options were granted under the Company’s existing 2014 Incentive Stock Plan. The options have an exercise price of $19.00, with 375,000 options vesting immediately and the remaining portion vesting upon the achievement of certain equity market capitalization milestones, and revenue and EBITDA operational milestones. For the year ended December 31, 2021, the Company recorded non-cash stock-based compensation expense of $13,255,388 for options that vested or are probable to vest. There was no stock-based compensation expense related to the Company’s LTIP in the year ended December 31, 2020 and 2019.

The fair value of option grants was calculated using a Monte Carlo simulation on the equity market capitalization tranches and the Black-Scholes-Merton option pricing method on the operational milestone tranches. As of December 31, 2021, we had $28,340,458 of total unrecognized stock-based compensation expense for the portion of options tied to equity market capitalization milestones and the portion of options tied to operational milestones that were considered probable of achievement, all of which will be recognized over a service period of up to 6 years. The probabilities of the milestone achievements are subject to catch-adjustments in each instance where an equity market capitalization milestone is achieved or when an operational milestone becomes probable to be achieved or is achieved. Compensation costs could be reversed in subsequent periods if an awardee leave the Company prior to the expiration of the option life for market capitalization milestone or performance ward vesting of a performance award no longer determined to be probable. If such milestones are achieved earlier in their expected service periods, the remaining unrecognized compensation expense related to that particular milestone would be accelerated and recognized in full during the period where that achievement is affirmed by the Board of Directors. As of December 31, 2021, and going forward, should all of the operational milestones which are currently not yet deemed probable of achievement become probable of achievement or are achieved, then the Company could ultimately recognize up to an additional $34.1 million in non-cash stock-based compensation expense at such time.

The following summary table shows the assumptions used to compute the fair value of the equity market capitalization awards and their estimated value:

December 31, 2021
Assumptions for Monte Carlo:
Expected term in years		1.4 to 5.2
Volatility		70.58	%
Risk-free interest rate		0.07 % to 1.28	%
Expected annual dividends		None
Value of options granted:
Number of options granted		3,079,500
Weighted average fair value per share	$	10.92
Fair value of options granted	$	33,623,423

The following summary table shows the assumptions used to compute the fair value of the performance-based awards and their estimated value:

December 31, 2021
Assumptions for Black-Scholes:
Expected term in years		6.0 to 10.0
Expected Volatility		84.67 % to 116.39	%
Risk-free interest rate		1.03 % to 1.63	%
Expected annual dividends		None
Value of options granted:
Number of options granted		2,704,500
Weighted average fair value per share	$	15.54
Fair value of options granted	$	42,040,151

During the fourth quarter of 2021, the Company reviewed its estimate for future expenses related to its Long-Term Incentive Plan for the potential achievement of market capitalization awards, which resulted in increased fair market values on this portion of the new LTIP, first put into place in March 2021. As a result, the total fair market value under of the market capitalization awards at that time of grant increased to approximately $33.6 million from $12.1 million as of March 31, 2021. This change was a result of management’s determination that the initial fair market value model’s inputs that were utilized were ultimately considered unacceptable according to U.S. GAAP guidance and as a result were revised by management and subsequently updated in its current model for determining the fair market of these market capitalization awards. This error correction was made in the fourth quarter of 2021.

The effect of these changes on actual stock-based compensation expense including in 2021 unaudited quarterly operating expenses was as follows:

	Q1-2021	Q2-2021	Q3-2021	Q4-2021
Additional Paid-in Capital	Increase of $2,512,007	Increase of $466,015	Increase of $2,541,482	Decrease of $5,519,504
Research and Development Expense	Increase of $125,391	Increase of $23,262	Increase of $126,863	Decrease of $275,516
Sales and Marketing	Increase of $62,696	Increase of $11,631	Increase of $63,431	Decrease of $137,758
General and Administrative	Increase of $2,323,920	Increase of $431,122	Increase of $2,351,188	Decrease of $5,106,230
Net Loss	Increase of $2,512,007	Increase of $466,015	Increase of $2,541,482	Decrease of $5,519,504
Loss per Share	Increase of $0.05	Increase of $0.01	Increase of $0.04	Decrease of $0.10

The unvested remaining equity market and operational milestones under the LTIP with their total related option grants and criteria achievement weightings of the options available for meeting a target are shown in the following table. Of the total 5,409,000 unvested options outstanding as of December 31, 2021, there are 2,704,500 options unvested for

the achievement of Equity Market Capitalization targets, 1,893,150 unvested options for the achievement of annual Revenue targets, and 811,350 unvested options for the achievement of annual EBITDA Margins Before Non-Cash Charges targets.

Award Potential	Criteria Achievement Weighting
	50% of Options Available	35% of Options Available	15% of Options Available
Options Available (Subject to Vesting)	Equity Market Capitalization Target	LTM Revenue Target	LTM EBITDA Margin before Non-Cash Charges Target
686,000	$ 2,000,000,000	$ 25,000,000	0.0%
686,000	3,000,000,000	50,000,000	2.0%
686,000	4,000,000,000	100,000,000	4.0%
686,000	5,000,000,000	200,000,000	6.0%
586,000	6,000,000,000	300,000,000	8.0%
586,000	7,000,000,000	450,000,000	10.0%
561,000	8,000,000,000	675,000,000	12.0%
491,000	9,000,000,000	1,000,000,000	14.0%
441,000	10,000,000,000	1,500,000,000	16.0%
5,409,000