NOTE 9 — STOCKHOLDERS’ EQUITY

Preferred Stock

As of September 30, 2019, and December 31, 2018, the Company had 105,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”), issued at $10 per share, paying a 5% cumulative annual dividend and convertible for common stock at a price of $4.385 per share. For the nine months ended September 30, 2019, preferred stockholders earned, but were not paid, $39,267 in annual dividends, or equivalent to 8,955 shares of common stock based on a conversion price of $4.385 per share. As of September 30, 2019, and December 31, 2018, cumulative and unpaid dividends were $232,007 and $192,740, respectively, or equivalent to 52,909 and 43,954 shares of common stock, respectively, based on a conversion price of $4.385 per share.

On any matter presented to the stockholders of the Company, holders of Preferred Stock are entitled to cast the number of votes equal to the number of shares of common stock into which the shares of Preferred Stock are convertible as of the record date to vote on such matter. As long as any shares of Preferred Stock are outstanding, the Company has certain restrictions on share repurchases or amendments to the Certificate of Incorporation in a manner that adversely affects any rights of the preferred stockholders.

In addition, the preferred stockholders have a liquidation preference for purposes of which the Preferred Stock would be valued at $10 per share plus accrued cumulative annual dividend. At September 30, 2019 and December 31, 2018, the total liquidation preference was valued at $1,287,007 and $1,242,740, respectively. In the event of any liquidity event, holders of each share of Preferred Stock shall be entitled to be paid the liquidation preference out of the assets of the Company legally available before any sums shall be paid to holders of common stock.

Common Stock

As of September 30, 2019, and December 31, 2018, the Company had 8,876,555 and 7,579,995 shares, respectively, of common stock issued and outstanding.

In the nine months ended September 30, 2019, the Company issued 21,932 shares of its common stock upon the exercise of options, for aggregate proceeds of $24,897. In the nine months ended September 30, 2019, the Company issued 1,252,319 shares of its common stock, upon the exercise of outstanding warrants to purchase an aggregate of 1,252,319 shares of common stock, for aggregate proceeds of $2,231,745. In the nine months ended September 30, 2019, the Company issued an aggregate of 11,055 shares of its common stock upon the net exercise of 15,596 outstanding options and issued an aggregate of 11,254 shares of its common stock upon the net exercise of outstanding warrants to purchase 27,231 shares of common stock.

Options

The following table summarizes the Company’s outstanding options activity during the nine months ended September 30, 2019:


				Weighted		Intrinsic
		Weighted		Average		Value
	Number of	Average		Remaining		of
	Options	Exercise Price		Term	Exercisable	Options
Outstanding at December 31, 2018	997,989	$	4.67	2.14	925,545	$	4,705,220
Granted	121,639		7.48	8.83			—
Exercised	(37,528)		1.75
Forfeited/Expired	(178,253)		12.28
Outstanding at September 30, 2019	903,847	$	3.67	2.97	766,350	$	1,209,562

On February 7, 2019, the Company granted an aggregate of 28,700 incentive stock options to employees newly hired since June 4, 2018. The options to purchase shares of common stock are exercisable at $10.55 per share, have a term of five years, and vest as to 50% of the options at the vesting commencement date, which is generally one year from the date of hire (vesting commencement dates range from June 4, 2019 through January 25, 2020), and vest as to the remaining 50% of the options in eight equal quarterly installments commencing on the first day of each calendar quarter following the vesting commencement date and installments continuing on the first day of each of the seven calendar quarters thereafter. All vesting is subject to the employee’s continued service through the vesting date. The exercise price was determined using the closing price of the Company’s common stock on February 7, 2019. The Black-Scholes value on the grant date of the options was $258,392.

On June 3, 2019, the Company granted an aggregate of 92,939 nonqualified stock options to employees newly hired since February 7, 2019, and longer-tenured employees for performance in 2018. The options to purchase shares of common stock are exercisable at $6.53 per share, have a term of ten years, and vest in three approximately equal annual installments on the first three anniversaries of the grant date. All vesting is subject to the employee’s continued service through the vesting date. The exercise price was determined using the closing price of the Company’s common stock on June 3, 2019. The Black-Scholes value on the grant date of the options was $571,471.

Option grants during the nine months ended September 30, 2019 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 3.25 to 6.00 years, expected volatility of 152.58% to 156.23%, risk free interest rate of 1.83% to 2.48%, and expected dividend yield of 0%. For the three and nine months ended September 30, 2019, total stock compensation expense related to options totaled $71,002 and $236,771, respectively. For the three and nine months ended September 30, 2018, total stock compensation expense related to options totaled $60,020 and $283,218, respectively. As of September 30, 2019, the outstanding unamortized stock compensation expense related to options was $600,845 (which will be recognized through June 2022).

Warrants

The following table summarizes the Company’s outstanding warrants activity for the nine months ended September 30, 2019:


				Weighted	Intrinsic
		Weighted		Average	Value
	Number of	Average		Remaining	of
	Warrants	Exercise Price		Term	Warrants
Outstanding at December 31, 2018	1,781,715	$	4.20	2.23	$	8,930,058
Granted	146,667		6.00	1.00		—
Exercised	(1,279,550)		1.85
Forfeited/Expired	(111,511)		10.72
Outstanding at September 30, 2019	537,321	$	7.34	0.90	$	63,500

In August 2019, the Company negotiated with holders of certain warrants to purchase the Company’s common stock with respect to a transaction in which the Company and the holders agreed to amend certain warrant agreements to provide that from the date of amendment through August 16, 2019, the exercise price was reduced from $2.50 to $1.63 per share for warrants to purchase an aggregate of 1,194,990 shares and from $6.25 to $4.07 per share for warrants to purchase an aggregate of 85,719 shares, provided that any exercise during such period was in full and the exercise price was paid in cash. During the August period, an aggregate of 1,212,136 warrants to purchase the Company’s common stock were exercised for net proceeds of $2,114,918.

On August 14, 2019, the Company issued 146,667 warrants to acquire the Company’s common stock at an exercise price of $6.00 per share for a term of one year (See Note 7).

For the three and nine months ended September 30, 2019, warrant-based compensation expense was $0. For the three and nine months ended September 30, 2018, the Company incurred warrant-based compensation expense of $0 and $110,600, respectively. There was no outstanding unamortized stock-based compensation expense related to warrants as of September 30, 2019.

Restricted stock units (“RSUs”)

The following table summarizes the restricted stock unit activity for the nine months ended September 30, 2019:


Restricted stock units issued as of December 31, 2018		222,514
Granted		158,845
Total Restricted stock units issued at September 30, 2019		381,359
Vested at September 30, 2019		242,514
Unvested restricted stock units as of September 30, 2019		138,845

On June 3, 2019, the Company granted 11,280 RSUs to each of Alexandre Zyngier, Ernest Purcell and Anthony Coelho for their continued service on the Board of Directors. Such RSUs will vest on June 3, 2020, subject to the director’s continuous service through the vesting date. The settlement date for such RSUs is the earlier of (i) June 3, 2026 or (ii) the date on which the Company undergoes a change of control. The fair value of the RSUs at grant date was $220,975.

On June 3, 2019, the Company granted 20,000 RSUs to an employee who is also a shareholder. Such RSUs will vest on September 3, 2019, and such vesting was subject to the employee’s continuous service through the vesting date. The settlement date for such RSUs is the earlier of (i) promptly after the vesting date or (ii) in any event no later than March 15, 2020. The fair value of the RSUs at grant date was $130,600.

On June 3, 2019, the Company granted 80,900 RSUs to Sachin Barot, its Chief Financial Officer, in accordance with his employment agreement. Such RSUs will vest annually over a three-year period, in installments of (i) 26,967 RSUs on June 3, 2020, (ii) 26,967 RSUs on June 3, 2021 and (iii) 26,966 RSUs on June 3, 2022, subject to Mr. Barot’s continuous service through the vesting date. The settlement date for such RSUs is the earlier of (a) promptly after each vesting date or (b) in any event no later than March 15 of the calendar year following the calendar year in which such vesting occurs. The fair value of the RSUs at grant date was $528,277.

On August 19, 2019, the Company granted 24,105 RSUs to Joel Horwitz in accordance with a consulting agreement. Such RSUs will vest in installments according to performance conditions establishing certain milestones to be achieved within a timeframe stipulated by the consulting agreement, and as determined quarterly and certified by the Compensation Committee of the Board of Directors. The settlement date for such RSUs is the earlier of (a) promptly after each vesting date or (b) in any event no later than March 15 of the calendar year following the calendar year in which such vesting occurs. The fair value of the RSUs at grant date was $95,697.

For the three and nine months ended September 30, 2019, the Company incurred RSU-based compensation expense of $202,213 and $760,596, respectively. For the three and nine months ended September 30, 2018, the Company incurred RSU-based compensation expense of $32,398 and $336,625, respectively. The outstanding unamortized stock-based compensation expense related to RSUs was $703,174 (which will be recognized through May 2022) as of September 30, 2019.