Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

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STOCK-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
The Innovid Corp. Incentive Plan (“2021 Incentive Plan”)
A total number of Company common stock equal to 10% of the fully-diluted shares outstanding following the closing of the Transaction will initially be authorized and reserved for issuance under the 2021 Incentive Plan, which is 15,617,049 shares of Company common stock. The number of shares authorized and reserved for issuance will be subject to an annual increase for 10 years on the first day of each calendar year beginning January 1, 2022, equal to the lesser of (A) 5% of the aggregate number of shares of Company common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares as is determined by the board of directors of Innovid Corp. The maximum number of shares of Company common stock that may be issued pursuant to the exercise of incentive stock options granted under the 2021 Incentive Plan will be equal to 30% of the total number of issued and outstanding shares of Company common stock on a fully diluted basis as of the closing of the Transaction, see Note 3, Transaction.
If shares covered by an award are not purchased or are forfeited or expire, or otherwise terminate without delivery of any shares subject thereto, then such shares will, to the extent of any such forfeiture, termination, cash-settlement or expiration, be available for future grant under the 2021 Incentive Plan. The payment of dividend equivalent rights in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2021 Incentive Plan, and shares tendered by a participant, repurchased by the Company using proceeds from the exercise of stock options or withheld by the Company in payment of the exercise price of a stock option or to satisfy any tax withholding obligation for an award will not again be available for future awards.
Innovid Stock Plan (“Innovid Stock Plan")
Under the Innovid Stock Plan, options may be granted to officers, directors, employees and non-employee consultants of the Company. Each option granted under the Plan expires no later than 10 years from the date of grant. The options vest usually over four years from commencement of employment or services. Any options, which are forfeited or not exercised before expiration, become available for future grants. From and after the effectiveness of the 2021 Incentive Plan, no additional awards will be granted under the Innovid Stock Plan. Upon the effectiveness of the Transaction, all outstanding stock options under the Innovid Stock Plan, whether vested or unvested, were converted into options to purchase a number of shares of common stock of the Company. Awards previously granted under the Innovid Stock Plan will continue to be subject to the provisions thereof.
Stock-based compensation expense
Stock-based compensation expense is related to awards issued to employees pursuant to the Innovid Stock Plan and the 2021 Incentive Plan, summarized as follows:
Year ended December 31,

2022 2021 2020
Cost of goods sold
 $ 1,171  $ 43  $ 11 
Research and development
 3,489  501  121 
Sales and marketing
 4,685  470  196 
General and administrative
 3,342  1,997  92 
Total
$ 12,687  $ 3,011  $ 420 
In connection with the options granted to service providers and non-employee consultants, during the twelve months ended December 31, 2022, 2021 and 2020, the Company recorded stock compensation expenses in the amount of $1,190, $262 and $162, respectively. The majority of these expenses were recorded in general and administrative.
During the twelve months ended December 31, 2022 the Company capitalized stock-based compensation expense of $1,165 in internal-use software cost. The Company stock-based compensation expense related to internal-use software cost for the same period in 2021 were immaterial.
Stock Options
Stock options may be granted to officers, directors, employees, and non-employee consultants of the Company. Each option granted under the Plan expires no later than 10 years from the date of grant. The options vest usually over four years from commencement of employment or services. Any options, which are forfeited or not exercised before expiration, become available for future grants.
In connection with the TVS acquisition, Innovid issued 949,893 stock options to holders of TVS options for replacement options. These options were fully vested upon issuance due to acceleration upon acquisition and therefore do not require future service for vesting. The Company attributed a total amount of $152 to post acquisition service and recorded it as stock compensation expenses immediately after the acquisition closed. See Note 4, Acquisition for further details.
A summary of the employees’ stock option activity under the Innovid Stock Plan and the 2021 Incentive Plan for the years ended December 31, 2022 is as follows:

 Year ended
December 31, 2022

Amount
of
options
Weighted
average
exercise
price
Weighted
average
remaining contractual term
(in years)
 Aggregate intrinsic value (in thousands)
Outstanding at beginning of year
11,122,648  $ 0.82  6.87 $ 64,818 
Transfer between employee and consultant 40,118  0.64 
Granted 2,105,258  2.10 
Granted in acquisition 949,893  0.31 
Forfeited (355,998) 1.60 
Expired (26,089) 1.37 
Exercised (3,149,387) 0.30 
Outstanding at end of year
10,686,443  $ 1.15  6.85 $ 5,923 
Exercisable options at end of year
6,687,488  $ 0.75  5.77 $ 6,409 

A summary of the consultants’ stock option activity under the Innovid Stock Plan for the year ended December 31, 2022 is as follows:

 Year ended
December 31, 2022

Amount
of
options
Weighted
average
exercise
price
Weighted
average
remaining contractual term
(in years)
 Aggregate intrinsic value (in thousands)
Outstanding at beginning of year
179,627  $ 0.31  2.34 $ 1,139 
Consultant has become employee (40,118) 0.64 
Granted —  — 
Forfeited (460) 2.81 
Expired (209) 2.81 
Exercised (69,298) 0.30 
Outstanding at end of year
69,542  $ 0.47  4.21 $ 86 
Exercisable options at end of year
64,524  $ 0.46  3.93 $ 81 
As of December 31, 2022, the Company had approximately $4,536 of total unrecognized compensation cost related to non-vested stock-based compensation. That cost is expected to be recognized over a weighted-average period of 1.8 years years.
The Company estimated the fair value of each option on the date of grant using the Black-Scholes option pricing model applying the weighted-average assumptions in the following table:

Year ended December 31,

2022

2021 2020
Expected volatility
69%-71%
 65  % 79  %
Expected dividends
 —  % —  % —  %
Expected term (in years)
 4.31 6.02 6.11
Risk free interest
2.84%-3.81%
1.06%-1.11%
0.62%-0.82%
Restricted Stock Units
In connection with the Company’s transition to its next life-cycle stage post Transaction, Restricted Stock Units (“RSUs”) may be granted to officers, directors, employees, and non-employee consultants of the Company, and generally vest over a three- or four-year period.
A summary of the employees’ RSU activity under the 2021 Incentive Plan for the year ended December 31, 2022 is as follows:
Number of share units
Weighted
average
grant date
fair value
Outstanding at beginning of year
 —  — 
Granted 9,329,639  5.65 
Released (96,884) 5.90 
Forfeited (1,246,382) 5.97 
Outstanding at end of year
 7,986,373  $ 5.60 
A summary of the consultants’ RSU activity under the 2021 Incentive Plan for the year ended December 31, 2022 is as follows:
Number of share units
Weighted
average
grant date
fair value
Outstanding at beginning of year
 —  — 
Granted 176,151  6.52 
Forfeited (45,883) 6.28 
Outstanding at end of year
 130,268  $ 6.60 
The weighted-average grant-date fair value of RSUs generally is determined based on the number of units granted and the quoted price of Innovid’s common stock on the date of grant.
As of December 31, 2022, $33,165 of unrecognized compensation cost related to RSUs is expected to be recognized as expense over the weighted average period of 2.0 years.
The Innovid Corp. Employee Stock Purchase Plan
On November 30, 2021, the ESPP became effective. A total of 2,868,438 shares of Company common stock were initially reserved for issuance under the ESPP. The compensation committee of our board of directors is the plan administrator of the ESPP and has the authority to interpret the terms of the ESPP and determine eligibility of participants. On the first day of each calendar year beginning on January 1, 2022 and ending on (and including) January 1, 2031, the number of shares available for issuance under the ESPP will be increased by a number of shares equal to the lesser of (i) 1% of the shares outstanding on the final day of the immediately preceding calendar year, and (ii) such smaller number of shares as determined by the board of directors. If any right granted under the ESPP terminates for any reason without having been exercised, the shares subject thereto that are not purchased under such right will again be available for issuance under the ESPP. Notwithstanding the foregoing, no more than 17,383,002 shares of Company Common Stock may be issued under the Section 423 Component of the ESPP.
As of December 31, 2022, the Company had not granted any options under the Innovid Corp. Employee Stock Purchase Plan.