NOTE 4 – Stockholders’ Equity

Common Stock

Effective September 22, 2023, we effected a 1-for-20 reverse stock split of the outstanding shares of our common stock and a corresponding decrease in the number of shares of our common stock that we are authorized to issue. In connection with the reverse split, we issued 40,197 common shares to round-up fractional shares to the nearest whole share.

The effects of the reverse stock split have been retroactively reflected in all periods presented.

In the third quarter of 2023, the Company sold 72,721 shares of common stock through our ATM Agreement, resulting in net proceeds of $364,555.

In the first quarter of 2023, the Company issued 11,380 shares of common stock in exchange for the conversion of 132 shares of Series D Convertible Preferred Stock and 2,161 shares of common stock as in-kind payment of dividends thereon.

Also in the first quarter of 2023, the Company issued 122 shares of common stock in exchange for the conversion of 17 shares of Series E Convertible Preferred Stock and 33 shares of common stock as in-kind payment of dividends thereon.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value per share, of which 316 and 465 shares were issued and outstanding at September 30, 2023 and December 31, 2022, respectively.

In January 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Institutional Private Placement”), pursuant to which the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”) at an initial stated value of $1,000 per share. Dividends accrue at a rate of 9% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and are payable monthly in kind by the increase of the stated value of the Series D Preferred Shares by said amount. The holders of the Series D Preferred Shares have the right at any time to convert all or a portion of the Series D Preferred Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which was $6.00 as of September 30, 2023 (subject to adjustment for stock splits, dividends, recapitalizations and similar events and full ratchet price protection in the event the Company issues or sells, or is deemed to have issued or sold, shares of Common Stock for a consideration per share less than a price equal to the conversion price then in effect).

On January 27, 2023, the holder of the remaining 132 outstanding shares of Series D Preferred Stock elected to convert such shares, which resulted in the issuance of 13,541 shares of common stock.

At September 30, 2023, there were no shares of Series D Preferred Stock outstanding.

Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued and sold to certain of its directors and the Company’s then largest stockholder 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”) at an initial stated value of $1,000 per share. Dividends accrue at a dividend rate of 9% per annum and are payable monthly in kind by the increase of the stated value of the Series E Preferred Stock by said amount. The Series E Preferred Stock is initially convertible into 2,428 shares of common stock (subject to adjustment for stock splits, dividends, recapitalizations and similar events).

On January 23, 2023, the holder of 17 shares of Series E Preferred Stock elected to convert such shares, which resulted in the issuance of 155 shares of common stock.

At September 30, 2023, 316 shares of Series E Preferred Stock were outstanding, which were convertible into 3,069 shares of common stock, including in-kind dividends thereon.

Stock Options

The Company’s 2013 Equity Incentive Plan expired on March 15, 2023. As such, there were no shares of common stock reserved for future issuance thereunder as of September 30, 2023.

On January 26, 2023, the Company granted options to its non-employee directors to purchase up to an aggregate of 2,620 shares of common stock at an exercise price of $11.60. As of September 30, 2023, 75% of such grants were fully vested and exercisable, and the remaining 25% will vest on December 31, 2023, subject to the directors remaining in our service through such date.

On January 26, 2023, the Company granted 19 employees options to purchase up to an aggregate of 19,065 shares of common stock in connection with their employment. The options have an exercise price of $11.60, vested as to 50% on the date of the grant, and will vest as to the remaining 50% in equal monthly installments over the subsequent 23 months, provided that the employees remain employed by the Company through such dates.

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s common stock on the grant date, but not less than 100% of the fair market value. Stock options are typically granted throughout the year and generally vest over a period from one to three years of service and expire five years from the grant date, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the vesting period for each stock option award.

Total stock-based compensation expense included in the statements of operations for the nine months ended September 30, 2023 and 2022 was $447,417 and $613,833 respectively, all of which is related to stock options.

The fair value of stock-based awards was estimated using the Black-Scholes model with the following weighted average assumptions for the nine months ended September 30, 2023, and 2022:

 Schedule of Share Based Payments Award Stock Options Valuation Assumptions

Option activity for the nine months ended September 30, 2023 and the year ended December 31, 2022 was as follows:

 Schedule of Share Based Compensation Stock Option Activity

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of our common stock for those awards that have an exercise price below the market price of our common stock. At September 30, 2023, no option had an exercise price below the $3.06 closing price of our common stock as reported on The Nasdaq Capital Market.

At September 30, 2023, there was $278,132 of unrecognized stock-based compensation expense related to unvested stock options with a weighted average remaining recognition period of 1.26 years.

Stock Appreciation Rights

On June 23, 2020, the board of directors (the “Board”) of the Company adopted the 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the stockholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards only in the form of stock appreciation rights payable in cash (“SARs”) and no shares of common stock are reserved or will be issued pursuant to the Plan.

A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”) upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a share of common stock on the date of grant of the SAR. The administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including the exercise price and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.

The Company did not grant any SAR’s during the nine months ended September 30, 2023.

The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the vesting period for each SAR award. The SARs are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation,” and any changes in fair value are reflected in the Statement of Operations as of the applicable reporting date.

The fair value of SAR awards was estimated using the Black-Scholes model with the following weighted average assumptions for the nine months ended September 30, 2023 and the year ended December 31, 2022:

 Schedule of Share Based Payments Award Stock Options Valuation Assumptions

SARs activity for the nine months ended September 30, 2023 and the year ended December 31, 2022 was as follows:

 Schedule of Stock Option Activity

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of our common stock for those awards that have an exercise price below the market price of our common stock. At September 30, 2023, no SAR had an exercise price below the $3.06 closing price of our common stock as reported on The Nasdaq Capital Market.

At September 30, 2023, there was $396,579 of unrecognized stock-based compensation expense related to unvested SARs with a weighted average remaining recognition period of 1.51 years.

Warrants

Warrant activity for the nine months ended September 30, 2023 and the year ended December 31, 2022 was as follows:

 Schedule of Warranty Activity