Stockholders' Equity

12 Months Ended

Dec. 31, 2022

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.

During 2022 and 2021 the Company issued 242,475 and 1,268,399 shares of common stock, respectively, pursuant to the exercise of stock options.

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, 2022.

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. No shares of the Company’s Series N preferred stock were converted during 2022.

Stock-Based Compensation Plans

At December 31, 2022, the Company had four active stock-based compensation plans which are described below. The fourth of these plans received approval at the Company’s 2022 Annual Meeting of Shareholders, and replaces the 2016 Plan for awards made after June 8, 2022.

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 2022 and 2021 options to purchase 100,000 and 50,000 shares respectively were granted to the Company’s executive and independent directors as part of their annual compensation.

2010 Plan	2022			2021
Options outstanding, beginning of year		331,250			1,100,000
Options granted		100,000			50,000
Options exercised		(147,500	)		(793,750	)
Options forfeited		(40,000	)		(25,000	)
Options outstanding, end of year		243,750			331,250

The outstanding options vest over four years at exercise prices ranging from $0.40 to $2.77 per share.

Other Options Issued

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. Shares issued upon exercise of these options are not registered for public sale. No awards under this plan were granted during 2022.

Other Options	2022			2021
Options outstanding, beginning of year		404,375			344,375
Options issued		—			150,000
Options exercised		(21,250	)		(22,500	)
Options forfeited		—			(67,500	)
Options outstanding, end of year		383,125			404,375

The outstanding options vest over four years at exercise prices ranging from $0.70 to $1.78 per share.

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. On June 8, 2022 the 2016 plan was replaced by the 2022 Heritage Global Inc. Equity Incentive Plan.

2016 Plan	2022			2021
Options outstanding, beginning of year		1,457,663			2,071,850
Options granted		35,000			522,500
Options exercised		(170,375	)		(1,079,187	)
Options forfeited		(66,313	)		(57,500	)
Options outstanding, end of year		1,255,975			1,457,663

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

2022 Heritage Global Inc. Equity Incentive Plan

In 2022, at the Company's 2022 Annual Meeting of Shareholders, the Company's shareholders approved the 2022 Heritage Global Inc. Equity Incentive Plan, which replaces the Heritage Global Inc. 2016 Plan and authorized the issuance of an aggregate of 3.5 million shares of Common Stock for awards made after June 8, 2022. As of December 31, 2022, the Company issued options to purchase 144,500 shares of common stock to certain of the Company's employees under this plan.

2022 Plan	2022
Options outstanding, beginning of year		—
Options granted		144,500
Options outstanding, end of year		144,500

The outstanding options under the 2022 Plan vest over four years at exercise prices ranging from $1.60 to $1.87 per share.

Stock-Based Compensation Expense

Total compensation cost related to stock options in both 2022 and 2021 was $0.4 million. These amounts were recorded in selling, general and administrative expense in both years. During 2022 and 2021, options to purchase 339,125 and 1,895,437 shares were exercised, respectively. The tax benefit recognized by the Company related to these option exercises was approximately $0.5 million in 2022, as compared to $1.0 million recognized in 2021.

In connection with the stock option grants during 2022 and 2021, 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:

	2022	2021
Risk-free interest rate	2% - 3%	0% - 1%
Expected life (years)	6	6.6
Expected volatility	70%	80%
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:

	2022					2021
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		2,193,288		$	1.23		3,516,225		$	0.63
Granted		279,500		$	1.62		722,500		$	2.28
Exercised		(339,125	)	$	0.50		(1,895,437	)	$	0.48
Forfeited		(106,313	)	$	1.79		(150,000	)	$	1.61
Outstanding at end of year		2,027,350		$	1.38		2,193,288		$	1.23
Options exercisable at year end		1,023,975		$	0.97		978,350		$	0.60
Weighted-average fair value of options granted    during the year				$	1.62				$	1.59

As of December 31, 2022, the Company had unvested options for the purchase of 1,003,375 shares with a weighted average grant date fair value of $1.80 per share. 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, 2022, the total unrecognized stock-based compensation expense related to unvested stock options was $1.0 million, which is expected to be recognized over a weighted-average period of 2.6 years.

The total fair value of options vesting during both 2022 and 2021 was $0.4 million and $0.2 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 as of December 31, 2022:

Exercise price	Options Outstanding		Weighted Average Remaining Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Life (years)		Weighted Average Exercise Price
$ 0.40 to $ 0.53		503,100		4.4	$	0.45		495,600		4.3	$	0.45
$ 0.70 to $ 0.95		354,875		6.8	$	0.79		240,125		6.8	$	0.79
$ 1.37 to $ 1.90		877,500		8.7	$	1.66		196,375		8.2	$	1.63
$ 2.77 to $ 3.33		291,875		8.4	$	2.85		91,875		8.3	$	2.84
		2,027,350						1,023,975

At December 31, 2022 and 2021, the aggregate intrinsic value of exercisable options was $1.5 million and $1.3 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 of the shares of common stock on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

On June 1, 2018, the Company granted 600,000 shares of Company restricted common stock in connection with the Addenda 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 $51,600 for the year ended December 31, 2022. The unrecognized stock-based compensation expense as of December 31, 2022 was approximately $21,500.

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.

On August 3, 2022, the Company granted 115,000 shares of Company restricted common stock to non-executive directors under the 2022 Heritage Global Inc. Equity Incentive Plan. Of the shares of Company restricted common stock granted during 2022, 40,000 shares were granted with a vesting term that was completed prior to the grant date due to a delay in the Company’s ability to grant such shares, and the remaining 75,000 shares will vest in full on March 31, 2023. We determined the fair value of the shares awarded by using the closing price of our common stock as of the grant date. Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $1.58 per share, was $124,600 for the year ended December 31, 2022. The unrecognized stock-based compensation expense as of December 31, 2022, was approximately $44,000.