Note 4 – Transactions Affecting Stockholders’ Equity

Our authorized capital stock consists of 50 million shares of common stock, $0.0005 par value, and one million shares of preferred stock, $0.0005 par value.

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 September 30, 2020 and December 31, 2019, no shares of preferred stock have been issued.

Common Stock Dividend

On December 24, 2018, our board of directors declared a special cash dividend of $0.25 per share on the Company’s common stock resulting in $2.9 million payable on January 24, 2019 to holders of record of the Company’s common stock on January 10, 2019. On January 24, 2019, the Company paid an aggregate of $2.9 million to the Company’s stockholders entitled to receive such dividend.

The 2010 Directors’ Equity Compensation Plan

On May 5, 2010, our stockholders approved the 2010 Directors’ Equity Compensation Plan, which 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 under the 2010 Directors’ Plan is equal to 675,000 shares.

During the three and nine months ended September 30, 2020, 212,605 and 230,660 shares of common stock and options, respectively, were granted to our directors under the 2010 Directors’ Plan. We recorded $108,000 of director fees during the nine months ended September 30, 2020 in connection with these grants and options, which the share grants represented the fair value of the shares calculated based on the average closing price of the Company’s shares of common stock for the last five trading days of the quarter in which the Board fee was earned and the fair values of stock options are determined through the use of the Black-Scholes option pricing model. The compensation cost is recognized as an expense over the requisite service period of the award, which usually coincides with the vesting period.

During the three and nine months ended September 30, 2019, 4,727 and 15,464 shares of common stock, respectively were granted to our directors under the 2010 Directors’ Plan. We recorded $45,000 of director fees during the nine months ended September 30, 2019 in connection with these grants, which represented the fair value of the shares calculated based on the average closing price of the Company’s shares of common stock for the last five trading days of the quarter in which the Board fee was earned.

At September 30, 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 three and nine months ended September 30, 2020.

The 2010 Equity Compensation Plan

On May 5, 2010, our stockholders approved the 2010 Equity Compensation Plan, which was 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.

There were 250,000 options granted under the 2010 Plan during the three and nine months ended September 30, 2020 and no options granted during the three and nine months ended September 2019. No stock options were exercised during the three and nine months ended September 30, 2020 and 2019.

As of September 30, 2020, there were 1,032,000 options outstanding and 278,659 options available to be issued pursuant to the terms of the 2010 Plan. We will recognize approximately $669,000 of share-based compensation expense over a weighted average period of 1.6 years.

The 2018 Stock Incentive Plan

On April 12, 2018, our stockholders approved the 2018 Stock Incentive Plan (the “2018 Stock Plan”). At April 12, 2018, all 2.3 million shares available for issuance under the 2018 Stock Plan have been granted in the form of stock options at an initial exercise price of $3.00 per share, which is exercisable in 36 monthly installments to Ted Karkus (the “CEO Option”), our Chief Executive Officer and no stock options have been exercised during the three and nine months ended September 30, 2020 and 2019.

The 2018 Plan requires certain proportionate adjustments to be made to the stock options granted under the 2018 Stock 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 the Company’s 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 the Company’s 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 Company’s stockholders. We will recognize approximately $188,000 of share-based compensation expense over a weighted average period of 0.4 years.

The following table summarizes stock options activity during the three and nine months ended September 30, 2020 for the 2010 Plan, 2010 Director Plan and 2018 Stock Plan (in thousands, except per share data):

Warrants –

On September 15, 2020, we issued warrants to purchase 200,000 shares of our Common Stock (the “September 2020 Warrants”) to two different consultants providing services to the Company. The assumptions used in determining the fair value of the 200,000 “September 2020 Warrants” granted in the nine months ended September 30, 2020 were (i) expected term of 2 years, (ii) weighted average risk rate of 0.16%, (iii) dividend yield of 0% and (iv) expected volatility of 56.21%. The exercise price of the September 2020 Warrants is $3.00 per share. We used the Black-Scholes pricing model during three months ended September 30, 2020 to determine the fair value of the Warrants at the date of grant. The fair value of the Warrants on the grant date were $372,000.

As of September 30, 2020, there were 400,000 warrants outstanding and we recognized $16,000 of share-based compensation expense for the three and nine months ended September 30, 2020.