STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS

NOTE 8 – STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS

During 2013, the Company adopted the 2013 Omnibus Equity Compensation Plan (the “2013 Plan”). Under the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based awards up to an aggregate of 400,000 shares of common stock.  The 2013 Plan is intended to permit certain stock options granted to employees under the 2013 Plan to qualify as incentive stock options.  All options granted under the 2013 Plan, which are not intended to qualify as incentive stock options are deemed to be non-qualified stock options.  

On November 14, 2017, the Executive Committee of the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (the “2017 Plan”) which covered the potential issuance of 260,000 shares of common stock. The 2017 Plan provided that directors, officers, employees, and consultants of the Company were eligible to receive equity incentives under the 2017 Plan at the discretion of the Board or the Board’s Compensation Committee.

On August 10, 2020, the Company’s Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), subject to stockholder approval, which covers the potential issuance of up to 1,069,110 shares of common stock. On September 30, 2020, the Company’s stockholders approved the 2020 Plan, and upon such approval the 2020 Plan became effective and the 2017 Plan was terminated. Shares of common stock underlying existing awards under the 2017 Plan may become available for issuance pursuant to the terms of the 2020 Plan under certain circumstances. Employees and non-employee directors of the Company or its affiliates, and other individuals who perform services for the Company or any of its affiliates, are eligible to receive awards under the 2020 Plan at the discretion of the Board or the Board’s Compensation Committee.

The 2020 Plan is administered by the Compensation Committee which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.

In connection with incentive stock options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company). The aggregate fair market value (determined at the time of the grant) of stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its affiliates) shall not exceed $100,000, and the options in excess of $100,000 shall be deemed to be non-qualified stock options, including prices, duration, transferability and limitations on exercise. The maximum number of shares of common stock that may be issued under the 2020 Plan pursuant to incentive stock options may not exceed, in the aggregate, 1,000,000.

The Company issued non-qualified stock options pursuant to contractual agreements with non-employees. Options granted under the agreements are expensed when the related service or product is provided.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties and judgements.

The following table presents the weighted-average assumptions used to estimate the fair value of the stock options granted during the nine months ended September 30, 2020:

Risk Free Interest Rate		1.77	%
Expected Volatility		452.96	%
Expected Life (in years)		4.4
Dividend Yield		0	%
Weighted average estimated fair value of
options during the period	$	4.62

	Options Outstanding
						Weighted -
						Average		Aggregate
						Remaining		Intrinsic
				Weighted-		Contractual		Value
	Number of			Average		Term		(in 000’s)
	Shares			Exercise Price		(in years)		(1)
Balance as of December 31, 2019	358,271			$5.91
Granted		133,000			3.85
Forfeited/Cancelled/Expired		(17,500	)		29.07
Balance as of September 30, 2020		473,771			$4.48
Exercisable as of September 30, 2020		436,771			$4.42		4.0	$49

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for options that were in-the-money at each respective period. 

The following table summarizes the activities for the Company’s unvested stock options for the nine months ended September 30, 2020:

	Unvested Options
	Weighted - Average
	Number of Unvested			Grant Date
	Options			Exercise Price
Balance as of December 31, 2019	20,000		$	9.75
Granted	133,000			3.85
Vested	(116,000	)		4.44
Balance as of September 30, 2020	37,000		$	5.19

Effective January 2020, the Company awarded its Chief Financial Officer incentive stock options exercisable for 4,000 shares of common stock with an exercise price of $3.505 vesting quarterly over a one-year period and expiring on January 7, 2025 with a fair value of $13,716.

Effective January 2020, the Company awarded four directors non-qualified stock options exercisable for 40,000 shares in the aggregate, for services rendered to the Company in 2019 with an exercise price of $3.505 vesting immediately and expiring on January 7, 2025 with a fair value of $137,160.

Effective January 2020, the Company awarded five of its directors non-qualified stock options exercisable for 50,000 shares in the aggregate, for services to be rendered to the Company in 2020 with an exercise price of $3.505 vesting quarterly over a one-year period and expiring on January 7, 2025 with a fair value of $171,451. 

On April 16, 2020, the Company approved a three-year extension of the expiration date for certain options previously granted to Patrick White, the Company’s President and Chief Executive Officer and to Norman Gardner, the Company’s Chairman. As a result, 140,000 options previously granted to Mr. White now expire on August 15, 2025 and 90,000 options previously granted to Mr. Gardner now expire on June 28, 2025. All other terms with respect to the option grants remain the same. The Company applied FASB ASC 718, “Compensation—Stock Compensation,” modification accounting and calculated a change in fair value of $153,913.

On April 16, 2020, the Company awarded a director non-qualified stock options for 3,000 shares of common stock for services rendered to the Company with an exercise price of $4.025 vesting immediately and expiring on April 16, 2025, with a fair value of $11,811.

On May 27, 2020, the Company awarded two directors non-qualified stock options for an aggregate of 8,000 shares of common stock for services rendered to the Company with an exercise price of $5.295 vesting immediately and expiring on May 27, 2025, with a fair value of $41,435.

In August 2020, the Company issued options to purchase of 28,000 shares of common stock, that expire eighteen months from the date of grant and have an exercise price of $4.60, for services performed by two sales consultants, with a fair value of $96,000.

During the nine months ended September 30, 2020 and 2019, the Company expensed $642,774 and $399,828, respectively, with respect to stock options.

As of September 30, 2020, there was $70,871 unrecognized compensation cost related to outstanding stock options expected to vest over the weighted average of 0.3 years.

The following table summarizes the activities for the Company’s warrants for the nine months ended September 30, 2020:

	Warrants Outstanding
		Number of Shares			Weighted- Average  Exercise Price	Weighted - Average  Remaining Contractual Term in years)		Aggregate Intrinsic Value (in 000's) (1)
Balance as of December 31, 2019		445,252		$	15.39
Granted		3,787,991			4.97
Cancelled/Forfeited		(454,000	)		7.50
Balance as of September 30, 2020		3,779,243		$	5.89	4.1
Exercisable as of September 30, 2020		3,605,330		$	5.93	4.3	$	-

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $3.22 for our common stock on September 30, 2020.

The Company issued three-year 2020 Warrants to purchase 498,000 shares of common stock to the purchasers of the 2020 Debentures (see Note 5 – Convertible Debt). The 2020 Warrants have an exercise price of $7.50 per share, and may be exercised cashlessly if the Company fails to maintain an effective registration statement at any time beginning six months after issuance. Of this amount, 2020 Warrants to purchase 82,500 shares were issued to four directors and an entity in which one officer of the Company is a majority owner and co-manager.

On June 22, 2020, 2020 Warrants to purchase 448,000 shares of common stock were cancelled (including 2020 Warrants for 82,500 shares that had been issued to four directors and an entity in which one officer of the Company is a majority owner and co-manager) and warrants to purchase 573,479 shares of common stock were issued upon closing of the Offering and conversion of the 2020 Debentures, with an exercise price of $4.60 and an expiration term of five years. Of this amount, warrants to purchase 105,567 of shares of common stock were issued to four directors and an entity in which one officer of the Company is a majority owner and co-manager.

As a result of the Offering, the per share exercise price for the outstanding but unexercised 2020 Warrants to purchase shares of common stock related to the two warrant holders who did not cancel their 2020 Warrants, has been adjusted from $7.50 to $4.59 and the number of shares of common stock underlying the outstanding but unexercised 2020 Warrants increased from an aggregate of 50,000 to 81,700 shares of common stock.

On May 27, 2020, the Company awarded four non-employees warrants to purchase an aggregate of 11,000 shares of common stock for services rendered to the Company with an exercise price of $5.295 vesting immediately and expiring on May 27, 2023, with a fair value of $53,835.

On June 18, 2020, in connection with the Offering, the Representative provided a partial exercise notice of the over-allotment option to purchase 50,000 additional shares of common stock and additional warrants to purchase 325,987 shares of common stock.

On June 22, 2020, in connection with the Offering, the Company issued warrants to purchase 2,499,900 shares of common stock, with a five-year term and an exercise price of $4.60, including the additional warrants pursuant to the over-allotment option exercise noted above.

In connection with the Offering, on June 22, 2020 the Company issued warrants to the Representative to purchase up to a total of 173,913 shares of common stock. The Representative’s Warrants are exercisable during the three-year period commencing 180 days from June 22, 2020. The Representatives Warrants are exercisable at a per share price equal to $5.06 per share with a fair value of $522,515 netted in Additional Paid-In Capital included in the accompanying Balance Sheets.