Closing of Public Offering

On July 24, 2020, the Public Offering closed, and the Company issued and sold in an underwritten public offering 12,545,453 shares of Common Stock (which includes 1,636,363 shares of Common Stock sold pursuant to the exercise by the underwriters of an overallotment option) pursuant to a registration statement on Form S-1 (File No. 333-239055), and the amendment thereto, which was initially filed with the SEC on June 9, 2020 and declared effective by the SEC on July 21, 2020, a registration statement on Form S-1 (File No. 333-239997) filed with the SEC on July 22, 2020 pursuant to Rule 462(b) under the Securities Act, which was effective immediately upon filing, and pursuant to the underwriting agreement between the Company and its underwriter. The net proceeds to the Company, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, was $12.3 million.

The following proforma information details the effect of the public offering as if it occurred at June 30, 2020. 

Issuance of Common Stock

Subsequent to June 30, 2020, the Company issued 174,746 shares of Common Stock to vendors for services rendered with a fair value of $206,000. These shares of Common Stock were valued based on the market value of the Company’s stock price at the issuance date or the date the Company entered into the agreement related to the issuance.

Grant of Stock Options

Subsequent to June 30, 2020, the Company granted stock options to an employee to purchase a total of 182,800 shares of Common Stock for services rendered. The options have an average exercise price of $1.36 per share, expire in five years, and vest over a period of 0.4, 3.4 years, and 4 years from grant date. The total fair value of these options at the grant date was $197,000 using the Black-Scholes option pricing model.

Warrant Conversion

Subsequent to June 30, 2020, 25,000 warrants were exercised resulting in the issuance of 25,000 shares of Common Stock. The Company received cash of $30,000 upon the exercise of the warrants.

Restricted Stock Awards

Subsequent to June 30, 2020, 561,102 Restricted Stock Awards vested as part of the Company’s payroll reduction plan, of which 148,287 shares were returned back to the Company in exchange for the Company paying the corresponding payroll taxes on behalf of the awardees.

Subsequent to June 30, 2020, the Company issued a 33,078 Restricted Stock Awards to employees that vested on grant date with an aggregate fair value of $34,000, of which 3,483 shares were returned back to the Company in exchange for the Company paying the corresponding payroll taxes on behalf of the awardees.

Approval of Compensation and Awards

On July 29, 2020, the board of directors (the “Board”) of the Company approved the elements of the 2020 compensation payable to our executive officers and directors upon the recommendation of the Board’s Compensation Committee (the “Committee”) comprised of only independent directors. The key elements of our compensation program are summarized below. For the development of the 2020 compensation program, the Committee retained Compensation Advisory Partners LLC (“CAP”), a respected independent compensation consulting firm. CAP provided the Committee with compensation advisory services with respect to both executive and Board compensation. CAP reviewed the 2019 compensation paid to our executive officers and Board and compared our compensation with companies CAP identified as appropriate peer companies. The Committee’s recommendation and the Board’s approval of the 2020 compensation program was based primarily on the recommendations made by CAP.

Base Salary and Target Bonus

On July 29, 2020, the Board approved an annual base salary equal to $490,000 for Rory J. Cutaia, the Company’s chairman of the Board, President, Chief Executive Officer, Secretary and Director, and an annual base salary equal to $250,000 for Jeffrey Clayborne, the Company’s Chief Financial Officer. The Board also approved a target cash bonus for 2020 equal to $490,000 and $125,000 for Messrs. Cutaia and Clayborne, respectively.

Restricted Stock Awards

On July 29, 2020, the Board granted annual restricted stock awards (“Annual RSAs”) under the Company’s 2019 Omnibus Incentive Plan (the “2019 Plan”) equal to 471,698 and 283,019 shares of our common stock for Messrs. Cutaia and Clayborne, respectively with an aggregate fair value of $800,000. The Annual RSAs represent the stock component of Messrs. Cutaia’s and Clayborne’s annual compensation and are subject to a four-year vesting period, with one quarter of the award vesting on the first, second, third and fourth anniversaries of the date of grant.

Cash Bonus

On July 29, 2020, the Board also approved a performance-based cash bonus equal to $100,000 and $25,000 payable to Messrs. Cutaia and Clayborne, respectively, effective as of July 29, 2020. The cash bonuses were granted in connection with the successful closings of our March 31, 2020 $5,000,000 private placement of our common stock and the July 24, 2020 $13,800,000 underwritten public offering of our common stock (the “Recent Offerings”).

Board Compensation

On July 29, 2020, the Board approved annual cash compensation for each of its non-employee independent directors equal to $175,000 for James P. Geiskopf, the Company’s Lead Director, and annual cash compensation equal to $75,000 for each of Judith Hammerschmidt, Nancy Heinen, Kenneth S. Cragun and Phillip J. Bond, the Company’s other non-employee independent directors.

On July 29, 2020, the Board also granted Annual RSAs under the 2019 Plan equal to 150,943 shares of our common stock for Mr. Geiskopf and 75,472 shares of our common stock for each of Mses. Hammerschmidt and Heinen and Messrs. Cragun and Bond with an aggregate fair value of $480,000. The Annual RSAs represent the stock component of our non-employee directors’ compensation and vest on the one-year anniversary of the date of grant.

Common Stock Bonus Grants

On July 29, 2020, the Board also approved common stock bonus grants equal to 166,365, 63,288 and 33,078 shares of our common stock to Messrs. Cutaia, Clayborne and Geiskopf, respectively, with an aggregate fair value of $268,000, of which 21,763 shares were returned back to the Company in exchange for the Company paying the corresponding payroll taxes on behalf of the awardees. The common stock bonus grants represent the stock component of Messrs. Cutaia’s, Clayborne’s and Geiskopf’s bonus and were issued in connection with the successful closing of the Recent Offerings. The officers and board member had an option between gross or net issuances resulting in the net issuance of 240,968 shares of Common Stock.

Issuance of Warrants

On August 5, 2020, the Company entered into a Settlement and Release Agreement with Iroquois Capital Investment Group LLC and Iroquois Master Fund Ltd. (collectively, “Iroquois”), and on August 6, 2020, the Company entered into a Settlement and Release Agreement with Kingsbrook Opportunities Master Fund LP (“Kingsbrook”) pursuant to which the Company issued (i) warrants to Iroquois exercisable for up to an aggregate 1,870,594 shares of Common Stock with an exercise price of $1.10 per share and (ii) a warrant to Kingsbrook exercisable for up to an aggregate 40,000 shares of Common Stock with an exercise price of $1.10 per share in an effort to resolve any claims, and without admission of wrongdoing or failures by the Company, Iroquois or Kingsbrook, of Iroquois’ right to participate in the Company’s public offering in July 2020 and Kingsbrook’s right to participate in the Company’s private placement in February 2020.

The warrants are exercisable from and after the date of issuance and at any time, in the case of the warrants issued to Iroquois, for the ten-trading-day period from the date the registration statement on Form S-3 is declared effective by the SEC, and in the case of the warrant issued to Kingsbrook, for the three-year period from the date of issuance. The warrants issued to Iroquois terminate ten trading days after the registration statement on Form S-3 is declared effective by the SEC, and the warrant issued to Kingsbrook terminates three years after issuance

Registration of Warrants of Common Stock Underlying Warrants

On August 10, 2020, the Company filed a registration statement on Form S-3 with the SEC. The prospectus contained in the registration statement relates to the proposed resale by the selling security holders named therein or their permitted assigns of up to 3,338,141 shares of Common Stock issuable upon exercise of common stock purchase warrants held by the selling security holders, which amount consists of up to (i) an aggregate of 1,319,351 shares of Common Stock issuable upon exercise of common stock purchase warrants issued in connection with an Omnibus Waiver and Acknowledgment Agreement, (ii) an aggregate of 1,910,594 shares of common stock issuable upon exercise of common stock purchase warrants issued in connection with Settlement and Release Agreements, and (iii) an aggregate of 108,196 shares of common stock issuable upon exercise of common stock purchase warrants issued to Meridian Newcastle Group, Inc.