Equity-Based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

EQUITY-BASED COMPENSATION

9. EQUITY-BASED COMPENSATION

Effective December 9, 2021, the Company adopted an equity incentive plan which allows for the granting of incentive and non-qualified stock options, restricted and unrestricted stock and stock units, stock appreciation rights, performance units and other stock-based awards to current and prospective employees and directors of, and consultants and advisors to, the Company.

In March 2021, the Company authorized 140,300 Class F member units in exchange for consulting services related to securing celebrity members and ambassadors of the Company and executed license agreements with the celebrity members, both of which occurred in March 2021. The estimated value of the award at the service inception date in March 2021 was $701,500. The service inception date preceded the grant date as the award had not been mutually agreed to and, therefore, was revalued at fair value as of June 30, 2021. In September 2021, the award was agreed to and the grant date was established. Therefore, the units were granted and the accrued equity-based compensation was reclassified to Class F Member’s Equity on the Company’s balance sheet at the grant date fair value of $4,902,802. Total equity-based compensation expense recognized related to these units was $0 for the three month periods ended September 30, 2022 and 2021. Total equity-based compensation expense recognized related to these units was $0 and $4,902,802 for the nine month periods ended September 30, 2022 and 2021, respectively.

In March 2021, the Company issued 313,000 Class F member units in exchange for various advertising and marketing services over a 5 year period with an estimated value of $1,565,000 to be amortized over 5 years. Total equity-based compensation expense recognized related to these units was $78,250 and $234,750 for the three and nine month periods ended September 30, 2022, respectively. Total equity-based compensation expense recognized related to these units was $78,250 and $182,583 for the three and nine month periods ended September 30, 2021, respectively.

As of September 30, 2022, there was $1,069,417 of unrecognized equity-based compensation expense recorded in prepaid expenses and other assets. The estimated expense for various marketing and advertising services in exchange for Class F member units, now common stock, described in the preceding paragraph for the periods subsequent to September 30, 2022 is as follows:

	Advertising and Marketing Expense
2022	$	78,250
2023		313,000
2024		313,000
2025		313,000
2026		52,167
	$	1,069,417

Warrants

On December 17, 2021, in connection with the Company’s IPO, the Company granted to the underwriters warrants to purchase up to 110,000 shares of common stock at $12.00 per share. These warrants vest one year from the date of issuance and are exercisable for four years after the vesting date.

Restricted Stock Units

On December 17, 2021, the Company granted 125,926 and 251,851 restricted stock units to its Chief Financial Officer and Chief Operating Officer, respectively. Restricted stock units represent the right to receive one share of common stock from the Company upon vesting. These restricted stock units had a vesting period of 180 days after the date of the final IPO prospectus. On February 24, 2022, the Company entered into a separation agreement with the former Chief Operating Officer (COO). Among other things, the Company agreed to provide the former COO with cash and expense reimbursements totaling $175,000 and an amendment of the COO’s Restricted Stock Agreement to accelerate the vesting of the 251,851 restricted stock units. Due to the modification of the terms of this award, the fair value was remeasured as of the modification date. Total equity-based compensation expense related to both of these restricted stock unit awards was $0 and $1,658,485 for the three and nine month period ended September 30, 2022. During the second quarter of 2022, these awards were fully vested and the shares of common stock underlying the awards had been delivered.

During the second quarter of 2022 the Company granted 47,800 restricted stock units to employees of the Company, all of which vested and were delivered in the second quarter of 2022. Total equity-based compensation expense related to these restricted stock units and shares was $0 and $213,380 for the three and nine month periods ended September 30, 2022.

On March 2, 2022, the Company granted 70,000 restricted stock units to members of the Company’s Board of Directors that fully vested on June 18, 2022. Total equity-based compensation expense related to these restricted stock units was $0 and $285,530 for the three month and nine month periods ended September 30, 2022.

Restricted stock unit activity as of and during the nine-month period ended September 30, 2022 was as follows:

	Number of RSUs			Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2021		377,777			0.45
Granted		117,800			0.33
Vested or released		(495,577	)		-
Forfeited		-			-
Outstanding at September 30, 2022		-			-

Shares of Restricted Stock

During the nine-month period ended September 30, 2022, the Company granted 10,000 shares of restricted stock to an employee upon commencement of employment in May 2022, of which 3,334 shares vested immediately with the remaining 6,666 shares scheduled to vest in two equal installments in May 2023 and May 2024. Restricted stock consists of shares of common stock that are subject to transfer and forfeiture restrictions that lapse upon vesting. Total equity-based compensation expense related to the grant of these shares of restricted stock was $2,303 and $12,442 for the three and nine month periods ended September 30, 2022, respectively. The total unrecognized equity-based compensation expense is $15,346 relating to the grant of these shares of restricted stock.

On March 30, 2022, the Company hired a new Chief Financial Officer. Pursuant to the employment agreement, the Company granted 100,000 shares of restricted stock. The restricted stock vests in three equal installments with the first third vesting immediately on the grant date of March 30, 2022, and the remaining tranches were scheduled to vest on the one year and two year anniversaries of the grant date subject to continued employment with the Company through the applicable vesting date. Effective June 24, 2022, this employee resigned from the Company and 66,666 unvested restricted stock awards were forfeited. Total equity-based compensation expense related to these restricted stock units was $0 and $110,602 for the three and nine month periods ended September 30, 2022, respectively.

Restricted stock activity as of and during the nine-month period ended September 30, 2022 was as follows:

	Number of Shares of Restricted Stock			Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2021		-			-
Granted		110,000			1.00
Vested or released		(36,668	)		-
Forfeited		(66,666	)		-
Outstanding at September 30, 2022		6,666			1.17

Stock Options

On March 11, 2022, the Company granted the option to purchase 427,001 shares of common stock at $3.47 per share to its Chief Executive Officer, pursuant to the Chief Executive Officer’s employment agreement with the Company. The shares vest in three equal installments on the nine month, one year, and two year anniversaries of the grant date and are exercisable for 10 years from the grant date. On June 8, 2022, the Chief Executive Officer’s employment with the Company ended resulting in the forfeiture of the entire award, which remained unvested at the time. Total equity-based compensation expense previously recognized for these stock options of approximately $63,000 was reversed in the nine month period ended September 30, 2022.

On March 30, 2022, in addition to the restricted stock granted to the Company’s new Chief Financial Officer, the Company granted the Chief Financial Officer an option to purchase 200,000 shares of common stock at $3.30 per share, pursuant to the employment agreement. The shares vest in three equal installments. The first third vested immediately on the grant date of March 30, 2022, and the remaining tranches were scheduled to vest on the one year and two year anniversaries of the grant date subject to continued employment with the Company through the applicable vesting date. The options are exercisable for 10 years from the grant date or, if earlier, ninety (90) days following termination of employment. Effective June 24, 2022, this employee resigned from the Company and all options were subsequently forfeited. Total equity-based compensation expense related to the vested stock options was $0 and $173,242 for the three and nine month periods ended September 30, 2022, respectively.

Effective September 1, 2022, the Company entered into an Employment Transition and Consulting Agreement with the previous interim Chief Financial Officer. Pursuant to the Transition Agreement and Consulting Agreement, the Company granted a stock option to purchase 69,892 shares of the Company’s common stock at a per share exercise price equal to $3.04 (the fair market value of the Company’s common stock on the date of grant). The stock option will vest with respect to 3,584 shares on the last calendar day of September, October and November of 2022, and the balance of the stock option will vest in monthly installments as nearly equal as possible (approximately 6,571 shares each) on the last calendar day of each month from December 2022 through August 2023.

Stock option activity as of and during the nine-month period ended September 30, 2022 was as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding at December 31, 2021		-			-
Granted		701,893			3.37
Exercised		-			-
Forfeited		(627,001	)		3.42
Outstanding at September 30, 2022		74,892			3.02
Exercisable at September 30, 2022		5,251			2.96

The Company uses the Black-Scholes option-pricing model to estimate the fair value of equity-based awards. The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to the Company’s IPO, the price per share of common stock was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the IPO, the price per share of common stock is determined by using the closing market price on The NYSE American stock exchange on the grant date. The risk-free interest rates, ranging from 0.02% to 1.64%, are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life of the awards at the grant date. The expected term for employee and nonemployee awards ranged from 3 to 10 years based on industry data, vesting period, contractual period, among other factors. The expected volatility was estimated at 75% based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility since being publicly traded. The Company does not expect to pay dividends. For awards with a performance condition, stock compensation is recognized over the requisite service period if it is probable that the performance condition will be satisfied.