Note 5 – Stockholders’ Equity

Our authorized capital stock consists of 50 million shares of common stock and one million shares of preferred stock, $0.0005 par value (“Preferred Stock”) per share.

Preferred Stock

The preferred stock authorized under our certificate of incorporation may be issued from time to time in one or more series. As of December 31, 2020, no shares of preferred stock have been issued. Our board of directors have the full authority permitted by law to establish, without further stockholder approval, one or more series of preferred stock and the number of shares constituting each such series and to fix by resolution voting powers, preferences and relative, participating, optional and other special rights of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any. Subject to the limitation on the total number of shares of preferred stock that we have authority to issue under our certificate of incorporation, the board of directors is also authorized to increase or decrease the number of shares of any series, subsequent to the issue of that series, but not below the number of shares of such series then-outstanding. In case the number of shares of any series is so decreased, the shares constituting such decrease will resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. We may, subject to any required stockholder approval amend from time to time our certificate of incorporation to increase the number of authorized shares of preferred stock or common stock or to make other changes or additions to our capital structure or the terms of our capital stock.

Common Stock Dividends

On December 24, 2018, the Board declared a special cash dividend of $0.25 per share on the Company’s common stock to holders of record on January 10, 2019, resulting in the payment of $2.9 million to stockholders on January 24, 2019.

On November 20, 2019, the Board declared a special cash dividend of $0.25 per share on the Company’s common stock to holders of record on December 3, 2019, resulting in the payment of $2.9 million to stockholders on December 12, 2019.

In Fiscal 2020, no cash dividends were declared.

The 2010 Directors’ Equity Compensation Plan

On May 5, 2010, our stockholders approved the 2010 Directors’ Equity Compensation Plan which, was has been subsequently amended and restated by our stockholders (the “2010 Directors’ Plan”). A primary purpose of the 2010 Directors’ Plan is to provide us with the ability to pay all or a portion of the fees of directors in stock instead of cash. The 2010 Directors’ Plan provides that the total number of shares of common stock that may be issued is equal to 675,000 shares.

During Fiscal 2020 and 2019, 30,660 and 24,074 shares, respectively, were granted to our directors under the 2010 Directors’ Plan. We recorded $53,000 and $62,000 of director fees during Fiscal 2020 and Fiscal 2019, respectively, in connection with these grants.

During Fiscal 2020, 200,000 options were granted to our directors under the 2010 Directors’ Plan at an exercise price of $2.83, the closing price of the Company’s common stock on the date of grant. The stock options will vest in four quarterly installments. We recorded $165,000 of compensation expenses for directors during Fiscal 2020, in connection with these grants. No options were granted in Fiscal 2019.

At December 31, 2020, there were 200,000 options outstanding and there were 128,126 shares of common stock available to be issued pursuant to the terms of the 2010 Directors’ Plan. No stock options were exercised during the Fiscal 2020.

The 2010 Equity Compensation Plan

On May 5, 2010, our stockholders approved the 2010 Equity Compensation Plan, which has been subsequently amended and restated by our stockholders (the “2010 Plan”). The 2010 Plan provides that the total number of shares of common stock that may be issued under the 2010 Plan is 3.9 million shares.

During Fiscal 2020,513,000 stock options were granted to our employees and non-employees under the 2010 Plan at an exercise price between $2.64 - $8.82 the closing price of the Company’s common stock on the date of grant with 25% of the stock options vested on the grant date, and 75% vesting over a 3-year period in equal annually installments. In addition, 510,000 options were granted during Fiscal 2020 in excess of the total amount allocated in the 2010 Plan. These options were excluded from the stock compensation expense calculation as the options require stockholder approval before we recognize the compensation expense.

During Fiscal 2019, the Company granted 200,000 stock options at an exercise price of $2.01, the closing price of the Company’s common stock on the date of grant, to certain employees. The stock options will vest in four equal annual installments beginning on the date of grant.

As of December 31, 2020, there were 1,295,000 stock options outstanding and 15,659 stock options available to be issued pursuant to the terms of the 2010 Plan.

The 2018 Stock Incentive Plan

On April 12, 2018, our stockholders approved the 2018 Stock Incentive Plan (the “2018 Stock Plan”). The 2018 Stock Plan provides for the grant of incentive stock options to eligible employees of the Company, and for the grant of nonstatutory stock options to eligible employees, directors and consultants. The purpose of the 2018 Stock Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain, and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The 2018 Stock Plan provides that the total number of shares that may be issued pursuant to the 2018 Stock Plan is 2.3 million shares. At April 12, 2018, all 2.3 million shares have been granted in the form of stock options to Ted Karkus (the “CEO Option”), our Chief Executive Officer and, to date, no stock options have been exercised under the 2018 Stock Plan. We will recognize approximately $59,000 of share-based compensation expense over a weighted average period of 0.2 years.

The 2018 Plan requires certain proportionate adjustments to be made to the stock options granted under the 2018 Plan upon the occurrence of certain events, including a special distribution (whether in the form of cash, shares, other securities, or other property) in order to maintain parity. Accordingly, the Compensation Committee of the board of directors, as required by the terms of the 2018 Stock Plan, adjusted the terms of the CEO Option, such that the exercise price of the CEO Option was reduced from $3.00 per share to $2.00 per share, effective as of September 5, 2018, the date the special $1.00 special cash dividend was paid to stockholders. The exercise price of the CEO Option was further reduced from $2.00 to $1.75 per share, effective as of January 24, 2019, the date the $0.25 special cash dividend was paid to stockholders. The exercise price of the CEO Option was further reduced from $1.75 to $1.50 per share, effective as of December 12, 2019, the date another $0.25 special cash dividend was paid to stockholders.

The following table summarizes stock options activities during Fiscal 2020 and 2019 for both 2010 Plan and 2018 Stock Plan (in thousands, except per share data). All outstanding options are expected to vest.

The following table summarizes weighted average assumptions used in determining the fair value of the stock options at the date of grant during Fiscal 2020 and 2019:

The expected stock price volatility is based on the Company’s historical common stock trading prices and the expected term is based on the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method. The fair value of the stock options at the time of the grant in Fiscal 2020 and 2019 was $1.4 million and $148,000, respectively. For Fiscal 2020 and 2019, we charged to operations approximately $1.2 million and $0.7 million, respectively, for share-based compensation expense for the aggregate fair value of the vested stock options earned.

Warrants

During the second and third quarter of Fiscal 2020, 450,000 three year warrants were issued to various consultants with vesting terms of one year or less and exercise prices of $3.00 to $5.00 per share. The following table summarizes warrants activities during Fiscal 2020 (in thousands, except per share data).

The following table summarizes weighted average assumptions used in determining the fair value of the warrants at the date of grant during Fiscal 2020:

As of December 31, 2020, there were 450,000 warrants outstanding and we recognized $178,000 of share-based compensation expense during Fiscal 2020.