Stockholders' Equity

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Stockholders' Equity

Note 17 – Stockholders’ Equity

Capital Stock

The Company’s authorized capital stock consists of 300,000,000 common shares with a par value of $0.01 per share and 10,000,000 preferred shares with a par value of $10.00 per share.

On October 6, 2020, the Company completed a public offering (the “2020 Public Offering”) of 5,462,500 shares of its common stock, at a public offering price of $1.75 per share, which included a full exercise of the underwriters’ option to purchase 712,500 additional shares of common stock from the Company. The Company received approximately $8.7 million of net proceeds, after deducting underwriting discounts and commissions, but before offering expenses. During 2021, the Company deployed proceeds to fund the ALT acquisition, as well as various principal transactions in both its Financial Assets and Industrial Assets Divisions.

During 2021 and 2020 the Company issued 1,268,399 and 274,582 shares of common stock, respectively, pursuant to the exercise of stock options. In connection with an agreement entered on November 25, 2019, the Company issued 205,000 common shares to Maxim Group LLC for services rendered during 2020.

On March 30, 2021, the Company and Scott West entered into a Separation Agreement and General Release (the “Separation Agreement”). Under the terms of the Separation Agreement, Mr. West’s separation from the Company was effective on March 31, 2021. On April 8, 2021, the Company granted 25,000 shares of the Company’s restricted common stock, which will be forfeited to the Company during the two years following the effective date of the Separation Agreement in the event Mr. West breaches the terms of the Separation Agreement. In addition, the Separation Agreement provides for customary mutual releases by the Company and Mr. West, and the Separation Agreement includes confidentiality, non-disparagement and other obligations. The full amount of the restricted common stock was expensed as of March 31, 2021 and there was no remaining unrecognized stock-based compensation expense as of December 31, 2021.

Each share of Series N preferred stock has a voting entitlement equal to 40 common shares, votes with the common stock on an as-converted basis and is senior to all other preferred stock of the Company. Dividends, if any, will be paid on an as-converted basis equal to common stock dividends. The conversion value of each share of Series N preferred stock is $1,000, and each share is convertible to 40 common shares at the rate of $25.00 per common share. The holders of shares of Series N preferred stock are entitled to liquidation preference over common stockholders equivalent to $1,000 per share. During 2021, three shares of the Company’s Series N preferred stock were converted into 120 shares of the Company’s common stock. During 2020, no shares of the Company’s Series N preferred stock were converted into shares of the Company’s common stock.

Stock-Based Compensation Plans

At December 31, 2021, the Company had four stock-based compensation plans which are described below. The fourth of these plans was adopted on May 5, 2016, and received approval from the Company’s stockholders at the special meeting of stockholders held on September 14, 2016.

2003 Stock Option and Appreciation Rights Plan

In 2003, the stockholders of the Company approved the 2003 Stock Option and Appreciation Rights Plan (the “2003 Plan”) which provided for the issuance of incentive stock options, non-qualified stock options and Stock Appreciation Rights (“SARs”) up to an aggregate of 2,000,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). The plan had a ten-year term, and therefore after 2013 no options have been issued. The price at which shares of common stock covered by the option can be purchased was determined by the Company’s Board or a committee thereof; however, in the case of incentive stock options the exercise price was never less than the fair market value of the Company’s common stock on the date the option was granted.

2003 Plan	2021		2020
Options outstanding, beginning of year		—		20,000
Options expired		—		(20,000	)
Options outstanding, end of year		—		—

No SARs were issued under the 2003 Plan.

2010 Non-Qualified Stock Option Plan

In 2010, the Company’s Board approved the 2010 Non-Qualified Stock Option Plan (the “2010 Plan”) to induce certain key employees of the Company or any of its subsidiaries who are in a position to contribute materially to the Company’s prosperity to remain with the Company, to offer such persons incentives and rewards in recognition of their contributions to the Company’s progress, and to encourage such persons to continue to promote the best interests of the Company. The Company reserved 1,250,000 shares of common stock (subject to adjustment under certain circumstances) for issuance or transfer upon exercise of options granted under the 2010 Plan. Options may be issued under the 2010 Plan to any key employees or consultants selected by the Company’s Board (or an appropriately qualified committee). Options may not be granted with an exercise price less than the fair market value of the common stock of the Company as of the day of the grant. Options granted pursuant to the plan are subject to limitations on transfer and execution and may be issued subject to vesting conditions. Options may also be forfeited in certain circumstances. During 2021 and 2020 options to purchase 50,000 and 60,000 shares respectively were granted to the Company’s independent directors as part of their annual compensation. During 2020, options to purchase 50,000 shares were granted to newly appointed independent directors. Also during 2020, the Company issued options to purchase 15,000 shares of common stock to an outside consultant.

2010 Plan	2021			2020
Options outstanding, beginning of year		1,100,000			975,000
Options granted		50,000			125,000
Options exercised		(793,750	)		—
Options forfeited		(25,000	)		—
Options outstanding, end of year		331,250			1,100,000

The outstanding options vest over four years at exercise prices ranging from $0.24 to $2.85 per share.

Other Options Issued

In 2012, the Company’s Board approved the issuance of options for 625,000 shares of common stock. The options expired during 2019. In 2021, the Company’s Board approved the issuance of options to purchase 150,000 shares at an exercise price of $1.78 to certain accredited personnel. In 2020, the Company’s Board approved the issuance of options to purchase 90,000 shares at an exercise price of $1.41 to certain accredited personnel.

Other Options	2021			2020
Options outstanding, beginning of year		344,375			265,000
Options issued		150,000			90,000
Options exercised		(22,500	)		(10,625	)
Options forfeited		(67,500	)		—
Options outstanding, end of year		404,375			344,375

Heritage Global Inc. 2016 Stock Option Plan

In 2016, the Company adopted the Heritage Global Inc. 2016 Stock Option Plan (the “2016 Plan”) which provided for the issuance of incentive stock options and non-qualified stock options up to an aggregate of 3,150,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). Options may not be granted with an exercise price less than the fair market value of the common stock of the Company as of the day of the grant. Options granted pursuant to the plan are subject to limitations on transfer and execution and may be issued subject to vesting conditions. Options may also be forfeited in certain circumstances. During 2016 options to purchase 2,539,200 shares of common stock were granted to the Company’s employees. During 2021 and 2020, options to purchase a total of 522,500 and 259,750 shares, respectively, were granted to the Company’s employees under the 2016 Plan.

2016 Plan	2021			2020
Options outstanding, beginning of year		2,071,850			2,351,850
Options granted		522,500			259,750
Options exercised		(1,079,187	)		(372,725	)
Options forfeited		(57,500	)		(167,025	)
Options outstanding, end of year		1,457,663			2,071,850

The outstanding options under the 2016 Plan vest over four years at exercise prices ranging from $0.45 to $3.33 per share.

Stock-Based Compensation Expense

Total compensation cost related to stock options in both 2021 and 2020 was $0.4 million. These amounts were recorded in selling, general and administrative expense in both years. During 2021 and 2020, options to purchase 1,895,437 and 383,350 shares were exercised, respectively. The tax benefit recognized by the Company related to these option exercises was approximately $1.0 million in 2021, as compared to $0.2 million recognized in 2020.

In connection with the stock option grants during 2021 and 2020, the fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

	2021	2020
Risk-free interest rate	0% - 1%	0% - 2%
Expected life (years)	6.6	6.8
Expected volatility	80%	74%
Expected dividend yield	Zero	Zero

The risk-free interest rates are those for U.S. Treasury constant maturities for terms matching the expected term of the option. The expected life of the options is calculated according to the simplified method for estimating the expected term of the options, based on the vesting period and contractual term of each option grant. Expected volatility is based on the Company’s historical volatility. The Company has never paid a dividend on its common stock and therefore the expected dividend yield is zero.

The following summarizes the changes in common stock options for 2021 and 2020:

	2021					2020
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		3,516,225		$	0.63		3,611,850		$	0.51
Granted		722,500		$	2.28		474,750		$	1.62
Exercised		(1,895,437	)	$	0.48		(383,350	)	$	0.46
Expired		—		$	—		(20,000	)	$	0.83
Forfeited		(150,000	)	$	1.61		(167,025	)	$	1.15
Outstanding at end of year		2,193,288		$	1.23		3,516,225		$	0.63
Options exercisable at year end		978,350		$	0.60		2,566,100		$	0.47
Weighted-average fair value of options granted    during the year				$	1.59				$	1.64

As of December 31, 2021, the Company had unvested options for the purchase of 1,214,938 shares with a weighted average grant date fair value of $0.96 per share. As of December 31, 2020, the Company had unvested options for the purchase of 950,125 shares with a weighted average grant date fair value of $0.71 per share.

As of December 31, 2021, the total unrecognized stock-based compensation expense related to unvested stock options was $1.2 million, which is expected to be recognized over a weighted-average period of 3.1 years.

The total fair value of options vesting during both 2021 and 2020 was $0.2 million and $0.3 million, respectively. The unvested options have no associated performance conditions. In general, the Company’s employee turnover is low, and the Company expects that the majority of the unvested options will vest according to the standard four-year timetable.

The following table summarizes information about all stock options outstanding at December 31, 2021:

Exercise price	Options Outstanding		Weighted Average Remaining Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Life (years)		Weighted Average Exercise Price
$ 0.24 to $ 0.48		742,225		5.0	$	0.44		700,600		4.9	$	0.44
$ 0.53 to $ 0.95		501,063		7.7	$	0.76		212,750		7.6	$	0.76
$ 1.41 to $ 1.90		612,500		9.3	$	1.47		47,500		8.5	$	1.47
$ 2.77 to $ 3.33		337,500		9.2	$	2.77		17,500		8.6	$	2.77
		2,193,288						978,350

At December 31, 2021 and 2020, the aggregate intrinsic value of exercisable options was $1.3 million and $6.3 million, respectively.

Restricted Stock

Restricted stock awards represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement. There is no exercise price and no monetary payment required for receipt of restricted stock awards or the shares issued in settlement of the award. Instead, consideration is furnished in the form of the participant’s services to the Company. Compensation cost for these awards is based on the fair value on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

In June 2018, the Company granted 600,000 shares of Company restricted common stock in connection with the Addendum to the Employment Agreements of David Ludwig and Tom Ludwig. The shares are subject to certain restrictions on transfer and a right of repurchase over five years, ending May 31, 2023, and require a continued term of service to the Company. Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $0.43 per share, was $52,000 for both 2020 and 2021. The unrecognized stock-based compensation expense as of December 31, 2021 and 2020 was approximately $73,000 and $125,000, respectively.

Under the terms of the Separation Agreement, the Company granted 25,000 shares of the Company’s restricted common stock on April 8, 2021. The shares of restricted common stock will be forfeited to the Company during the two years following the effective date of the Separation Agreement in the event Mr. West breaches the terms of the Separation Agreement. The full amount of the restricted common stock was expensed in the first quarter of 2021 and there was no remaining unrecognized stock-based compensation expense as of December 31, 2021.