Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.21.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2021
Equity [Abstract]  
Stockholders' Equity

NOTE 5 - Stockholders’ Equity

 

Common Stock

 

In January 2021, the Company closed a public offering of its securities in which it issued 1,711,783 shares of common stock at $3.00 per share, resulting in net proceeds of approximately $4,532,445 after deducting underwriting commissions and other offering expenses payable by the Company. Pursuant to the Underwriting Agreement, the Company also issued to the Underwriter or its designee warrants to purchase 136,943 shares of common stock. Such warrants have a term of five years and an exercise price of $3.75 per share.

 

In February 2021, the Company issued 263,200 shares of common stock pursuant to the exercise of warrants issued in our January 2020 private placement.

 

In March 2021, the Company issued 119,000 shares of common stock in exchange for the conversion of 250 shares of Series D Convertible Preferred Stock, including 19,000 shares of common stock as in-kind payment of preferred stock dividends. Also in March 2021, the company issued 191,204 shares of common stock pursuant to the exercise of warrants issued in our April 2020 offering, and 21,591 shares of common stock issued pursuant to the cashless exercise of placement agent warrants.

 

In March 2021, the Company closed a public offering of its securities in which it issued 2,190,000 shares of common stock at $4.445 per share, resulting in net proceeds to the Company of approximately $8,736,487 after deducting placement agent commissions and other offering costs payable by the Company. Pursuant to the Purchase Agreement, the purchasers severally agreed to vote the shares of common stock purchased under the Purchase Agreement in favor of any resolution presented to the stockholders of the Company for the purpose of obtaining approval of an increase in the authorized shares of the Company’s Common Stock from 12,000,000 to 24,000,000 shares (“Stockholder Approval”). In a concurrent private placement under the Purchase Agreement, the Company issued to the purchasers warrants to purchase an aggregate of 2,190,000 shares of Common Stock at an exercise price of $4.32 per share. Each Warrant will be exercisable commencing on the date the Company obtains Stockholder Approval and will expire two years after the initial exercise date. The Company also issued to designees of the Placement Agent warrants to purchase up to 175,200 shares of Common Stock (the “Placement Agent Warrants”) constituting 8% of the aggregate number of shares of Common Stock sold in the Registered Offering, The Placement Agent Warrants have substantially the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to 125% of the offering price per share (or $5.55625 per share). Upon any exercise of the Warrants for cash, we have also agreed to pay the Placement Agent warrants to purchase 8.0% of the number of shares of our Common Stock issued upon the cash exercise of the Warrants.

 

In March 2021, Company issued 1,500 shares of common stock valued at $4.99 per share to CorProminence, an investor relations firm previously engaged by the Company as partial compensation for services previously rendered.

 

In the first quarter of 2020, the Company issued 408,318 shares of common stock in exchange for the conversion of 1,107 shares of Series D Convertible Preferred stock, including 86,801 shares of common stock as in-kind payment of preferred stock dividends.

 

In February 2020, the Company issued 2,500 shares of common stock valued at $8.70 per share to MHZCI, LLC, an investor relations firm engaged by the Company, as partial compensation for services to be rendered.

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. 465 and 1,378 shares of preferred stock were issued and outstanding at March 31, 2021 and 2020, respectively.

 

In January 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Institutional Private Placement”). Pursuant to the SPA, the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Under the Certificate of Designations for the Series D Preferred Stock, the Series D Preferred Stock has an initial stated value of $1,000 per share (the “Stated Value”). Dividends accrue at a dividend rate of 9% per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series D Preferred Shares by said amount. The holders of the Series D Preferred Shares have the right at any time to convert all or a portion of the Series D Preferred Shares (including, without limitation, accrued and unpaid dividends and make-whole dividends through the third anniversary of the closing date) into shares of the Company’s Common Stock at the conversion price then in effect, which is $2.50 (subject to adjustment for stock splits, dividends, recapitalizations and similar events and full ratchet price protection). In addition, a holder may at any time, alternatively, convert all, or any part, of its Series D Preferred Shares at an alternative conversion price, which equals the lower of the applicable conversion price then in effect, and the greater of (x) $1.80 and (y) 85% of the average volume weighted average price (“VWAP”) of the Common Stock for a five (5) trading day period prior to such conversion. Upon the occurrence of certain triggering events, described in the Certificate of Designations, including, but not limited to payment defaults, breaches of transaction documents, failure to maintain listing on the Nasdaq Capital Market, and other defaults set forth therein, the Series D Preferred Shares would become subject to redemption, at the option of a holder, at a 125% premium to the underlying value of the Series D Preferred Shares being redeemed.

 

At March 31, 2021 there were 132 shares of Series D Convertible Preferred stock outstanding, which if converted at the Conversion Price of $2.50 as of March 31, 2021, including the make-whole dividends, would result in the issuance of 62,832 shares of common stock.

 

Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors and the Company’s largest shareholder (the “Other Private Placement”). Pursuant to the SPA, the Company issued and sold 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”). Dividends accrue at a dividend rate of 9% per annum and, on a monthly basis, shall be payable in kind by the increase of the Stated Value of the Series E Preferred Shares by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of Common Stock,

 

At March 31, 2021, all of the issued Series E Convertible Preferred Stock was outstanding, which if converted as of March 31, 2021, including the make-whole dividends, would result in the issuance of 61,651 shares of common stock.

 

Stock Options

 

As of March 31, 2021, an aggregate of 9,681 shares of common stock were reserved for future issuance under the 2013 Plan.

 

In January 2021, the Company granted options to purchase 96,000 shares of common stock to its directors and an option to purchase 24,000 shares of common stock to a consultant as partial compensation for services to be rendered. The options have a strike price of $3.13 and vest equally over twelve months beginning January 2021.

 

During the three months ended March 31, 2021, the Company granted five employees options to purchase up to 20,500 shares of common stock in connection with their employment. The options have strike prices equal to the closing price of our common stock on each of the grant dates, and will vest in equal installments on the first through third anniversaries of the grant dates, provided that the employees remain employed by the Company on such dates.

 

In January 2021, the Company granted a consultant an option to purchase 1,000 shares of common stock for services to be rendered. The option has a strike price of $3.52 and will vest on June 30, 2021, provided that the consultant remains a service provider to the Company as of such date,

 

In February 2021, the Company granted a consultant an option to purchase 1,572 shares of common stock for services rendered. The option has a strike price of $3.66 and is fully vested.

 

During the three months ended March 31, 2020, the Company granted options to purchase 8,100 shares of common stock to Iron Dome Ventures, LLC as partial compensation for investor relations services to be rendered. The option vests equally over nine months beginning February 2020.

 

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company’s stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service and expire five years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.

 

Total share-based compensation expense included in the statements of operations for the three months ended March 31, 2021 and 2020 is $117,477 and $154,170, all of which is related to stock options.

 

The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the three months ended March 31, 2021 and the year ended December 31, 2020:

 

Assumptions:

 

    2021     2020  
Dividend yield     0.00 %     0.00 %
Risk-free interest rate     0.19-0.22 %     0.19-0.50 %
Expected volatility     116.8-117.2 %     116.0-117.0 %
Expected life (in years)     5       5  

 

Option activity for the three months ended March 31, 2021 and the year ended December 31, 2020 was as follows:

 

    Options     Weighted Average Exercise Price ($)     Weighted Average Remaining Contractual Life (Yrs.)     Aggregate Intrinsic Value ($)  
                         
Options outstanding at December 31, 2019     180,912       1.81       5.09       25,988  
Granted     579,998       2.55       4.57       -  
Exercised     -       -       -       -  
Forfeited or cancelled     (47,900 )     22.62       -       -  
Options outstanding at December 31, 2020     713,010       5.15       4.40       477,802  
Granted     143,072       3.21       4.77       -  
Exercised     -       -       -       -  
Forfeited or cancelled     -       -       -       -  
Options outstanding March 31, 2021     856,082       4.82       4.26       746,906  
Options expected to vest in the future as of March 31, 2021     439,611       3.73       4.40       -  
Options exercisable at March 31, 2021     416,471       5.98       4.10       -  
Options vested, exercisable, and options expected to vest at March 31, 2021     856,082       4.82       4.26       746,906  

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $3.72 closing price of our Common Stock on March 31, 2021. At March 31, 2021, 718,070 option grants have an exercise price currently below $3.72.

 

At March 31, 2021, there was $1,198,573 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 2.84 years.

 

Stock Appreciation Rights

 

On June 23, 2020, the board of directors (the “Board”) of the Company adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.

 

SARs may be granted to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock (“Share”) upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The administrator of the Plan will have the authority to, among other things, prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant.

 

On June 23, 2020, the Company granted, pursuant to the Plan, (i) 60,094 SARs to its President and Chief Executive Officer, (ii) 12,019 SARs to its Vice President of Business Development, (iii) 24,038 SARs to its Chief Technology Officer, and (iv) 18,028 SARs to its Chief Financial Officer. The exercise price of each such SAR is $2.63, which was the closing price of the Company’s common stock on the date of grant. Such SARs expire on the fifth anniversary of the grant date and may be settled only in cash. Additionally, each such SAR will vest and become exercisable in three equal (as closely as possible) installments on each of the first, second and third anniversaries of the grant date, subject, in each case, to the applicable SAR holder being in the continuous employ of the Company on the applicable vesting date, and, in the event of a Change in Control (as defined in the Plan), will become immediately vested and exercisable as long as the applicable holder is in the Company’s employ immediately prior to the Change in Control, and will otherwise be on such other terms set forth in the form of Stock Appreciation Rights Agreement. On November 19, 2020, we granted 13,500 SARs to a consultant as partial compensation for services pursuant to the consulting agreement.

 

The Company recognizes compensation expense and a corresponding liability for the fair value of the SARs over the requisite service period for each SAR award. The SAR’s are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in income as of the applicable reporting date.

 

The fair value of SAR awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the three months ended March 31, 2021 and the year ended December 31, 2020:

 

Assumptions:

 

    2021     2020  
Dividend yield     0.00     0.00- %
Risk-free interest rate     0.19-0.22     0.19-0.22
Expected volatility     116.2%-116,8     116.2-116.8
Expected life (in years)     5       5  

 

SARs activity for the three months ended March 31, 2021 and the year ended December 31, 2020 was as follows:

 

    Options     Weighted Average Exercise Price ($)     Weighted Average Remaining Contractual Life (Yrs.)     Aggregate Intrinsic Value ($)  
                -        
SARs outstanding at December 31, 2019     -       -       -        
Granted     127,679       2.61       4.52       97,919  
Exercised     -       -       -       -  
Forfeited or cancelled     -       -       -       -  
SARs outstanding at December 31, 2020     127,679       2.61       4.52       97,919  
Granted     -       -       -       -  
Exercised     -       -       -       -  
Forfeited or cancelled     -       -       -       -  
SARs outstanding March 31, 2021     127,679       2.61       4.27       141,330  
SARs expected to vest in the future as of March 31, 2021     118,679       2.62       4.25       -  
SARs exercisable at March 31, 2021     9,000       2.47       4.64       -  
SARs vested, exercisable, and SARs expected to vest at March 31, 2021     127,679       2.61       4.27       141,330  

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the $3.72 closing price of our common stock on March 31, 2021. All of the SARs grants have an exercise price currently below $3.72.

 

At March 31, 2021, there was $180,108 of unrecognized share-based compensation expense related to unvested SARs with a weighted average remaining recognition period of 2.23 years.

 

Warrants

 

Warrant activity for the three months ended March 31, 2021 the year ended December 31, 2020 was as follows:

 

    Warrants     Weighted Average Exercise Price ($)     Weighted Average Remaining Contractual Life (Yrs.)  
Warrants outstanding at December 31, 2019     363,728       25.60       3.12  
Granted     1,540,139       3.19       4.64  
Exercised     (22,438 )     -       -  
Forfeited or cancelled     -       -       -  
Warrants outstanding at December 31, 2020     1,881,429       7.57       4.16  
Granted     412,143       4.60       3.66  
Exercised     (495,641 )     2.59       -  
Forfeited or cancelled     -       -       -  
Warrants outstanding at March 31, 2021     1,797,931       8.26       3.72