NOTE 8 — STOCKHOLDERS’ EQUITY

Preferred Stock

As of June 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 six months ended June 30, 2019, preferred stockholders earned, but were not paid, $26,034 in annual dividends, or equivalent to 5,937 shares of common stock based on a conversion price of $4.385 per share. As of June 30, 2019 and December 31, 2018, cumulative and unpaid dividends were $218,774 and $192,740, respectively, or equivalent to 49,891 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 June 30, 2019 and December 31, 2018, the total liquidation preference was valued at $1,268,774 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 June 30, 2019 and December 31, 2018, the Company had 7,656,046 and 7,579,995 shares, respectively, of common stock issued and outstanding.

In the six months ended June 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 six months ended June 30, 2019, the Company issued 40,183 shares of its common stock, upon the exercise of outstanding warrants to purchase an aggregate of 40,183 shares of common stock, for aggregate proceeds of $116,827. In the six months ended June 30, 2019, the Company issued an aggregate of 9,999 shares of its common stock upon the net exercise of 13,341 outstanding options and issued an aggregate of 3,937 shares of its common stock upon the net exercise of outstanding warrants to purchase 11,446 shares of common stock.

Options

The following table summarizes the Company’s outstanding options activity during the six months ended June 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	(35,273)		1.61	—	—		—
Forfeited/Expired	(129,753)		10.08	—	—		—
Outstanding at June 30, 2019	954,602	$	4.41	2.82	804,103	$	3,870,943

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 six months ended June 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 six months ended June 30, 2019, total stock compensation expense related to options totaled $93,495 and $165,769, respectively. For the three and six months ended June 30, 2018, total stock compensation expense related to options totaled $78,152 and $223,198, respectively. As of June 30, 2019, the outstanding unamortized stock compensation expense related to options was $760,202 (which will be recognized through June 2022).

Warrants

The following table summarizes the Company’s outstanding warrants activity for the six months ended June 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	—		—	—		—
Exercised	(51,629)		3.67	—		—
Forfeited/Expired	(81,927)		8.03	—		—
Outstanding at June 30, 2019	1,648,159	$	4.19	1.86	$	7,303,284

For the three and six months ended June 30, 2019, warrant-based compensation expense was $0. For the three and six months ended June 30, 2018, the Company incurred warrant-based compensation expense of $109,207 and $110,600, respectively. There was no outstanding unamortized stock-based compensation expense related to warrants as of June 30, 2019.

Restricted stock units (“RSUs”)

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


Restricted stock units issued as of December 31, 2018		222,514
Granted		134,740
Total Restricted stock units issued at June 30, 2019		357,254
Vested at June 30, 2019		222,514
Unvested restricted stock units as of June 30, 2019		134,740

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 30, 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 David Kovacs, an employee who is also a shareholder. Such RSUs will vest on September 3, 2019, subject to Mr. Kovac’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 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.

For the three and six months ended June 30, 2019, the Company incurred RSU-based compensation expense of $181,757 and $558,384, respectively. For the three and six months ended June 30, 2018, the Company incurred RSU-based compensation expense of $83,363 and $304,227, respectively. The outstanding unamortized stock-based compensation expense related to RSUs was $809,691 (which will be recognized through May 2022) as of June 30, 2019.