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Stockholders’ Equity
 12 Months Ended
Dec. 31, 2021
Equity [Abstract]  
Stockholders’ Equity

NOTE 8 – Stockholders’ Equity

 

Common Stock

 

Effective February 27, 2020, our Articles of Incorporation were amended to provide for a reverse stock split of the outstanding shares of our common stock on a 1-for-10 basis (the “Reverse Stock Split”), and a corresponding decrease in the number of shares of our common stock that we are authorized to issue (the “Share Decrease”). The effects of the stock split have been retroactively reflected to all periods presented.

 

 

On May 24, 2021, at a special shareholders’ meeting, our authorized shares of common stock were increased from 12,000,000 to 24,000,000. At our annual shareholders’ meeting held on June 15, 2020, our authorized shares of common stock were increased from 8,000,000 to 12,000,000. On March 27, 2020, at a special shareholders’ meeting, our authorized shares of common stock were increased from 2,250,000 to 8,000,000.

 

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 $8,736,488 after deducting placement agent commissions and other offering costs payable by the Company. 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 became exercisable on May 24, 2021, the date the Company obtained stockholder approval of an increase in the authorized shares of the Company’s Common Stock and will expire two years from such 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 an investor relations firm as partial compensation for services previously rendered.

 

In September 2021, the Company granted 5,204 shares of common stock to non-executive employees pursuant to the 2013 Equity Incentive Plan.

 

On April 6, 2020, the Company closed a public offering of equity securities in which it issued 493,027 shares of common stock and pre-funded warrants to purchase up to 22,438 shares of the Company’s common stock. The Company also issued Series A Warrants to purchase an aggregate of 515,465 shares of the Company’s common stock pursuant to a private placement. In connection with this offering, the Company issued Dawson James Securities, Inc., its Placement Agent, a warrant to purchase an aggregate of 41,237 shares of the Company’s Common Stock (which amount is based on the number of Common Shares and shares underlying the Pre-Funded Warrants) at an exercise price of $3.64 per share. Net proceeds to the Company after deducting offering expenses were approximately $1,230,000. On December 4, 2020, the Company issued 22,438 shares of common stock for the exercise of the pre-funded warrants.

 

In the twelve months ended December 31, 2020, the Company issued 3,272,048 shares of common stock in exchange for the conversion of 7,404 shares of Series D Convertible Preferred stock, and 774,940 shares of common stock as in-kind payment of preferred stock dividends.

 

In the twelve months ended December 31, 2020, the Company issued 25,851 shares of common stock for services.

 

 

Deferred Compensation

 

In 2021 and 2020, the Company issued to various employees, directors, and contractors shares of the Company’s common stock, subject to restrictions, pursuant to the 2013 Equity Incentive Plan (the “2013 Plan”). Such shares were valued at the fair value at the date of issue. The fair value was expensed as compensation over the vesting period and recorded as a reduction of stockholders’ equity. During 2021 and 2020, $19,255 and $77,187, respectively, of the unvested compensation cost related to these issues was recognized.

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock, $0.001 par value. 465 and 715 shares of preferred stock were issued and outstanding at December 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 will 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 December 31, 2021 there were 132 shares of Series D Convertible Preferred stock outstanding, which if converted as of December 31, 2021, including the make-whole dividends, would have resulted in the issuance of 87,267 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 formerly 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 December 31, 2021, all of the issued Series E Convertible Preferred Stock were outstanding, which if converted as of December 31, 2021, including the make-whole dividends, would have resulted in the issuance of 61,651 shares of common stock.

 

 

Stock Options

 

On July 15, 2021, at the Annual Meeting of Stockholders of the Company, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2013 Plan by 875,000 shares of our common stock to a total of 1,765,000 shares. As of December 31, 2021, there were 339,677 shares available for issuance under the 2013 Plan.

 

During 2021, the Company granted a total of 698,831 options to 35 employees, 4 directors, and 4 consultants with vesting periods ranging from immediately upon issue to three years beginning January 4, 2021. In 2021, 598,789 options vested and $1,741,366 of compensation cost was recognized during the year. As of December 31, 2021, there were options to purchase 1,395,882, shares issued and outstanding, 1,345,882 of which have been issued under the 2013 Plan. At December 31, 2021, there are vested options exercisable for 941,934 shares of common stock. Options to purchase 5,204 shares of common stock were exercised during the year ended December 31, 2021.

 

During 2020, the Company granted a total of 579,998 options to 19 employees, 4 directors, and 5 consultants with vesting periods ranging from immediately upon issue to three years beginning May 1, 2020. In 2020, 294,373 options vested and $854,217 of compensation cost was recognized during the year. As of December 31, 2020, there were options to purchase 713,010 shares issued and outstanding, 663,010 of which have been issued under the 2013 Plan. At December 31, 2020, there were vested options exercisable for 349,642 shares of common stock. No options were exercised during the year ended December 31, 2020.

 

The Company generally grants stock options to employees, consultants 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 three 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 employee share-based compensation expense included in the statements of operations for the year ended December 31, 2021 is $1,066,455 of which $1,047,200 is related to stock options. Total employee share-based compensation for 2020 totaled $596,842, of which $573,232 is related to stock options. There was no capitalized share-based compensation cost as of December 31, 2021 and 2020, and there were no recognized tax benefits during the years ended December 31, 2021 and 2020.

 

To estimate the value of an award, the Company uses the Black-Scholes option-pricing model. This model requires inputs such as expected life, expected volatility and risk-free interest rate. The forfeiture rate also impacts the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop. While estimates of expected life, volatility and forfeiture rate are derived primarily from the Company’s historical data, the risk-free rate is based on the yield available on U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards. The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2021 and 2020:

 

 

Assumptions:

 

   2021   2020 
Dividend yield   0.00%   0.00%
Risk-free interest rate   0.19-0.67%   0.19-0.50%
Expected volatility   117.0 – 124.0%   116.0 – 117.0%
Expected life (in years)   5    5 

 

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

 

       Weighted Average   Weighted Average     
       Exercise   Remaining   Aggregate 
       Price   Contractual   Intrinsic 
   Options   ($)   Life (Yrs.)   Value ($) 
Options outstanding at December 31, 2019   180,912    1.81    5.09    25,988 
Granted   579,998    2.55    4.57    477,802 
Exercised   -    -    -    - 
Forfeited or cancelled   (47,900)   22.62    -    - 
Options outstanding at December 31, 2020   713,010    5.15    4.40    477,802 
Options expected to vest in the future as of December 31, 2020   363,368    3.92    4.53    - 
Options exercisable at December 31, 2020   349,642    6.43    4.27    - 
Options vested, exercisable, and options expected to vest at December 31, 2020   713,010    5.15    4.40    477,802 
Options outstanding at December 31, 2020   713,010    5.15    4.40    477,802 
Granted   698,831    3.29    4.39    46,800 
Exercised   (5,204)   2.50    -    - 
Forfeited or cancelled   (10,755)   3.49    -    - 
Options outstanding at December 31, 2021   1,395,882    4.24    3.89    - 
Options expected to vest in the future as of December 31, 2021   453,948    3.64    4.07    - 
Options exercisable at December 31, 2021   941,934    4.53    3.81    - 
Options vested, exercisable, and options expected to vest at December 31, 2021   1,395,882    4.24    3.89    - 

 

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 $1.84 closing price of our Common Stock on December 31, 2021. All of the 2021 option grants have an exercise price currently above $1.84.

 

At December 31, 2021, there was $1,164,723 of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 2.10 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 August 11, 2021, the Company granted, pursuant to the Plan, (i) 77,748 SARs to its Chief Executive Officer, (ii) 30,313 SARs to its Vice President of Business Development, (iii) 76,304 SARs to its Chief Technology Officer, and (iv) 48,580 SARs to its Chief Financial Officer. The exercise price of each such SAR is $3.42, which was the closing price of the Company’s common stock on the date of grant. On June 23, 2020, the Company granted, pursuant to the Plan, (i) 60,094 SARs to its 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 July 29, 2021, we granted 10,000 SARs to a consultant as partial compensation for services pursuant to his consulting agreement, and on November 19, 2020, we granted 13,500 SARs to such consultant as partial compensation for services pursuant to his consulting agreement. As of December 31, 2021, all such SARs were full vested and exercisable.

 

 

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 twelve months ended December 31, 2021:

 

Assumptions:

 

   2021   2020 
Dividend yield   0.00%   0.00%
Risk-free interest rate   0.39-0.40%   0.19-0.22%
Expected volatility   123.0%   116.8%
Expected life (in years)   5    5 

 

SARs activity for the twelve months ended December 31, 2021 was as follows:

 

       Weighted Average   Weighted Average     
       Exercise   Remaining   Aggregate 
       Price   Contractual   Intrinsic 
   SARs   ($)   Life (Yrs.)   Value ($) 
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   242,945    3.43    4.61    - 
Exercised   -    -    -    - 
Forfeited or cancelled   -    -    -    - 
SARs outstanding December 31, 2021   370,624    3.15    4.24    - 
SARs expected to vest in the future as of December 31, 2021   309,065    3.23    4.33    - 
SARs exercisable at December 31, 2021   61,559    2.78    3.75    - 
SARs vested, exercisable, and options expected to vest at December 31, 2021   370,624    3.15    4.24    - 

 

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 $1.84 closing price of our common stock on December 31, 2021. All of the SARs grants have an exercise price currently above $1.84.

 

At December 31, 2021, there was $685,503 of unrecognized share-based compensation expense related to unvested SARs with a weighted average remaining recognition period of 2.37 years.

 

Warrants

 

At December 31, 2021, the Company had outstanding warrants to purchase a total of 3,987,931 shares of common stock. The warrants have exercise prices that range from $0.10 to $40.00, which if not exercised, will expire between February 22, 2022 and January 6, 2026.

 

Warrant activity for the year ended December 31, 2021 and 2020 was as follows:

 

       Weighted Average  

Weighted

Average

 
       Exercise   Remaining 
       Price   Contractual 
   Warrants   ($)   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   2,602,143    4.36    1.63 
Exercised   (495,641)   -    - 
Forfeited or cancelled   -    -    - 
Warrants outstanding at December 31, 2021   3,987,931    6.10    2.10