Stockholders' Equity

3 Months Ended

Mar. 31, 2022

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

13. STOCKHOLDERS’ EQUITY

Common Stock Issuances

From February 2016 to April 2021, we issued the aggregate of 4,553,017 shares of common stock in six different transactions raising gross proceeds of approximately $26,714,000 at the weighted average price of $5.87 per share. These funds have been essential to funding our business growth plans. The details of each transaction are discussed below.

On October 28, 2015, we filed a registration statement on Form S-3 (File No. 333-207635) with the Securities and Exchange Commission (SEC) for the potential issuance of up to $10,000,000 in equity securities (subject to certain limitations). This registration statement became effective on November 10, 2015. Under this form of registration statement, we were limited within a twelve-month period to raising gross proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company. Having raised $10,000,000 in gross proceeds under the February 2016, July 2017 and December 2017 equity transactions described below, no additional equity securities can be issued under this registration statement.

On February 3, 2016, we sold 1,123,810 shares of common stock at a price to the public of $5.25 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $5,900,000 and resulting in net proceeds to the Company of approximately $5,313,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).

On October 21, 2016, we closed on a private placement of 659,880 shares of common stock to nineteen institutional and accredited investors at $5.25 per share, raising gross proceeds of approximately $3,464,000 and resulting in net proceeds to the Company of approximately $3,161,000 (after deducting placement agent fees and other expenses incurred in connection with the equity financing).

On July 27, 2017, we issued 200,000 shares of our common stock at a price of $5.25 per share in a public, registered sale to two related investors pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of $1,050,000 and resulting in net proceeds of approximately $1,034,000 (after deducting expenses incurred in connection with the equity financing).

On December 21, 2017, we sold 417,807 shares of common stock at a price to the public of $7.30 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $3,050,000 and resulting in net proceeds to the Company of approximately $2,734,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).

On November 20, 2018, we filed a registration statement on Form S-3 (File No. 333-228479) with the Securities and Exchange Commission (SEC) for the potential issuance of up to $20,000,000 in equity securities (subject to certain limitations). This registration statement became effective on November 29, 2018. Under this form of registration statement, we were limited within a twelve-month period to raising gross proceeds of no more than one-third of the market capitalization of our common stock (as determined by the high price of our common stock within the preceding 60 days leading up to a sale of securities) held by non-affiliates (non-insiders) of the Company. Under SEC rules governing this form of registration statement, this registration statement expired upon the third anniversary of its effectiveness.

On March 29, 2019, we sold 1,636,364 shares of common stock at a price to the public of $5.50 per share in an underwritten public offering pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $9,000,000 and resulting in net proceeds to the Company of approximately $8,303,000 (after deducting underwriting discounts and offering expenses incurred in connection with the equity financing).

On April 14, 2021, we issued 515,156 shares of our common stock at a price of $8.25 per share in a public, registered sale to seven investors pursuant to our effective shelf registration statement on Form S-3, raising gross proceeds of approximately $4,250,000 and resulting in net proceeds of approximately $4,233,000 (after deducting expenses incurred in connection with the equity financing).

Stock Option Plans

In June 2010, our stockholders approved the 2010 Stock Option and Incentive Plan (the “2010 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2010 Plan and subsequently no additional shares have been reserved for the 2010 Plan. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case-by-case basis. All options granted under the 2010 Plan expire no later than 10 years from the date of grant. The 2010 Plan expired in June 2020, after which date no further options can be granted under the 2010 Plan. However, options outstanding under the 2010 Plan at that time can be exercised in accordance with their terms. As of March 31, 2022, there were 217,500 options outstanding under the 2010 Plan.

In June 2017, our stockholders approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”) pursuant to the provisions of the Internal Revenue Code of 1986, under which employees and certain service providers may be granted options to purchase shares of the Company’s common stock at no less than fair market value on the date of grant. At that time, 300,000 shares of common stock were reserved for issuance under the 2017 Plan and subsequently no additional shares have been reserved for the 2017 Plan. A proposal to increase the number of shares reserved for issuance under the 2017 Plan by 350,000 shares from 300,000 shares to 650,000 shares is subject to approval by a vote of stockholders at the 2022 annual meeting of stockholders to be held in June 2022. Vesting requirements are determined by the Compensation and Stock Option Committee of the Board of Directors on a case-by-case basis. All options granted under the 2017 Plan expire no later than 10 years from the date of grant. The 2017 Plan expires in March 2027, after which date no further options can be granted under the 2017 Plan. However, options outstanding under the 2017 Plan at that time can be exercised in accordance with their terms. As of March 31, 2022, there were 279,500 options outstanding under the 2017 Plan. Additionally, contingent grants aggregating 53,500 shares have been made to 47 full-time employees and 5 part-time employees, subject to approval by stockholders of the proposal to increase shares reserved for issuance under the 2017 Plan, described above. If this amendment is not approved, these contingent grants will become null and void.

Activity under the stock option plans described above was as follows:

	2010 Plan			2017 Plan			Weighted Average Exercise Price		Aggregate Intrinsic Value(1)
Outstanding as of December 31, 2019		255,000			133,500		$	6.48	$	(516,475	)
Grants		7,000			93,000		$	5.03
Terminations/forfeitures		(12,000	)		(50,000	)	$	5.45
Exercises		(12,500	)		—		$	3.15
Outstanding as of December 31, 2020		237,500			176,500		$	6.38	$	(180,038	)
Grants		—			86,000		$	9.78
Terminations/forfeitures		(12,000	)		(20,000	)	$	7.26
Exercises		(7,000	)		(18,000	)	$	7.08
Outstanding as of December 31, 2021		218,500			224,500		$	6.94	$	468,425
Grants		—			57,000		$	8.17
Terminations/forfeitures		—			(2,000	)	$	4.25
Exercises		(1,000	)		—		$	5.84
Outstanding as of March 31, 2022		217,500			279,500		$	7.10	$	1,269,335
Vested as of March 31, 2022		183,500			98,500		$	6.78	$	808,490
Vested and expected to vest as of March 31, 2022		217,500			279,500		$	7.10	$	1,269,335
Reserved for future grants		—			2,500

⁽¹⁾ Intrinsic value is the difference between the fair market value of the underlying common stock as of the date indicated and as of the date of the option grant (which is equal to the option exercise price).

The following table displays additional information about the stock option plans described above:

	Number of Shares		Weighted Average Fair Value at Grant Date		Weighted Average Exercise Price
Non-vested stock options as of January 1, 2022		160,000	$	3.36	$	7.23
Non-vested stock options as of March 31, 2022		215,000	$	3.61	$	7.51
Stock options granted during the three-month period ended March 31, 2022		57,000	$	4.26	$	8.17
Stock options that vested during the three-month period ended March 31, 2022		—	$	—	$	—
Stock options that were forfeited during the three-month period ended March 31, 2022		2,000	$	2.16	$	4.25

During the three-month period ended March 31, 2022, one former employee exercised stock options covering 1,000 shares with $5,840 in cash. During the year ended December 31, 2021, one director and three employees exercised stock options covering 25,000 shares by the surrender of 17,128 shares of common stock with a fair market value of $165,337 at the time of exercise and the payment of $11,693 in cash.

The weighted average remaining life of the options outstanding under the 2010 Plan and the 2017 Plan as of March 31, 2022 was approximately 5 years and 4 months. The weighted average remaining life of the options exercisable under these plans as of March 31, 2022 was approximately 4 years. The exercise prices of the options outstanding as of March 31, 2022 ranged from $4.00 to $10.04 per share. The 86,000 stock options granted during the year ended December 31, 2021 had exercise prices between $6.10 and $10.04 per share. The aggregate intrinsic value of options exercised during the three-month period ended March 31, 2022 and the year ended December 31, 2021 approximated $2,480 and $64,977, respectively. The weighted-average grant date fair values of options granted during the three-month period ended March 31, 2022 and the year ended December 31, 2021 were $4.26 and $4.51 per share, respectively. As of March 31, 2022, total unrecognized stock-based compensation related to non-vested stock options aggregated $533,895, which will be recognized over a weighted average remaining period of 1 year and 11 months. The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model, for the purpose discussed in Note 2(m), with the following weighted-average assumptions:

	During the Three-Month Periods Ended March 31,
	2022			2021
Risk-free interest rate		1.63	%		0.43	%
Dividend yield		0	%		0	%
Expected volatility		52	%		53	%
Expected life		6.5 years			6.5 years

The risk-free interest rate is based on U.S. Treasury yields for a maturity approximating the expected option term, while the other assumptions are derived from averages of our historical data.

Common Stock Rights Plan

In September 1995, our Board of Directors adopted a Common Stock Rights Plan (the “Rights Plan”) and declared a dividend of one common share purchase right (a “Right”) for each of the then outstanding shares of the common stock of the Company. Each Right entitles the registered holder to purchase from the Company one share of common stock at an initial purchase price of $70.00 per share, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between the Company and American Stock Transfer & Trust Co., as Rights Agent.

The Rights (as amended) become exercisable and transferable apart from the common stock upon the earlier of i) 10 days following a public announcement that a person or group (Acquiring Person) has, without the prior consent of the Continuing Directors (as such term is defined in the Rights Agreement), acquired beneficial ownership of 20% or more of the outstanding common stock or ii) 10 days following commencement of a tender offer or exchange offer the consummation of which would result in ownership by a person or group of 20% or more of the outstanding common stock (the earlier of such dates being called the Distribution Date).

Upon the Distribution Date, the holder of each Right not owned by the Acquiring Person would be entitled to purchase common stock at a discount to the initial purchase price of $70.00 per share, effectively equal to one half of the market price of a share of common stock on the date the Acquiring Person becomes an Acquiring Person. If, after the Distribution Date, the Company should consolidate or merge with any other entity and the Company were not the surviving company, or, if the Company were the surviving company, all or part of the Company’s common stock were changed or exchanged into the securities of any other entity, or if more than 50% of the Company’s assets or earning power were sold, each Right would entitle its holder to purchase, at the Rights’ then-current purchase price, a number of shares of the acquiring company’s common stock having a market value at that time equal to twice the Right’s exercise price.

At any time after a person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding common stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment). At any time prior to 14 days following the date that any person or group becomes an Acquiring Person (subject to extension by the Board of Directors), the Board of Directors of the Company may redeem the then outstanding Rights in whole, but not in part, at a price of $0.005 per Right, subject to adjustment.

At various times over the years, our Board of Directors has voted to authorize amendments of the Rights Agreement to extend the Final Expiration Date, which is currently September 19, 2022. Our Board of Directors has decided to seek an advisory vote by stockholders at the 2022 annual meeting of stockholders to be held in June 2022, as to whether to extend the Rights Plan by one year to September 19, 2023. Our Board of Directors intends to be guided by the votes actually cast on this proposal in deciding whether to extend the expiration date by one year. During the third quarter of 2011, our Board of Directors voted to authorize an amendment to increase the ownership threshold for determining “Acquiring Person” status to 20%. During the second quarter of 2015, our Board of Directors also voted to authorize an amendment to remove a provision that prevented a new group of directors elected following the emergence of an Acquiring Person (an owner of more than 20% of our stock) from controlling the Rights Plan by maintaining exclusive authority over the Rights Plan with pre-existing directors. We did this because such provisions have come to be viewed with disfavor by Delaware courts. Each time that we made such amendments we entered into amendments to the Rights Agreement with the Rights Agent reflecting such extensions, threshold increases or provision changes. No other changes have been made to the terms of the Rights or the Rights Agreement.

Authorized Common Stock

At the June 14, 2018 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 8,000,000 to 11,000,000. At the June 10, 2020 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from 11,000,000 to 15,000,000.