NextTrip, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.) Condensed Balance Sheets September 30, 2022 (Unaudited) December 31, 2021 ASSETS Current Assets: Cash $ 4,800,680 $ 11,447,047 Accounts Receivable, net 367,770 412,192 Inventory 967,432 710,080 Prepaid Assets 177,724 114,278 Total Current Assets 6,313,606 12,683,597 Other Assets: Property and Equipment, net 244,838 232,282 Intangible Assets, net 1,084,205 925,111 Total Other Assets 1,329,043 1,157,393 TOTAL ASSETS $ 7,642,649 $ 13,840,990 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable $ 403,547 $ 206,442 Deferred Revenue 129,689 148,855 Accrued Expenses 287,645 625,942 Total Current Liabilities 820,881 981,239 TOTAL LIABILITIES 820,881 981,239 Stockholders’ Equity Preferred Stock, $ 0.001 par value; 10,000,000 shares authorized; 465 shares issued and outstanding 1 1 Common Stock, $ 0.001 par value; 24,000,000 shares authorized; 10,498,802 shares issued and outstanding 10,499 10,499 Additional Paid-In Capital 54,193,981 53,442,431 Accumulated Deficit ( 47,382,713 ) ( 40,593,180 ) Total Stockholders’ Equity 6,821,768 12,859,751 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 7,642,649 $ 13,840,990 See accompanying notes to condensed financial statements. 3 Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.) Condensed Statements of Operations (Unaudited) 2022 2021 2022 2021 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 REVENUES $ 188,245 $ 700,237 $ 476,749 $ 1,302,525 COST OF REVENUE 79,713 164,766 312,879 409,493 GROSS PROFIT 108,532 535,471 163,870 893,032 OPERATING EXPENSES: Salaries & Benefits 1,227,805 1,222,760 3,704,633 3,055,279 Stock-Based Compensation 275,418 659,512 613,833 893,431 Operations and R&D Costs 152,245 131,772 442,548 608,812 Investor, Public Relations and Marketing 46,832 119,622 293,458 342,725 Organization Costs 140,522 342,112 260,088 578,256 Legal & Professional Service Fees 252,886 261,075 608,830 681,941 Office Expenses 183,608 172,238 692,640 472,335 Depreciation & Amortization 26,857 27,689 88,302 76,502 Other Operating Expenses 86,783 90,108 263,747 267,663 Total Operating Expenses 2,392,956 3,026,888 6,968,079 6,976,944 LOSS FROM OPERATIONS ( 2,284,424 ) ( 2,491,417 ) ( 6,804,209 ) ( 6,083,912 ) OTHER INCOME (EXPENSE) Interest Income 278 2,981 3,025 10,053 State Incentives - - 76,628 - Exchange Rate Loss ( 6,184 ) ( 490 ) ( 16,950 ) ( 333 ) Interest Expense ( 1,978 ) ( 2,052 ) ( 5,367 ) ( 5,434 ) Other Income - - - 1,092,441 Total Other Income (Expense) ( 7,884 ) 439 57,336 1,096,727 LOSS BEFORE PROVISION FOR INCOME TAXES ( 2,292,308 ) ( 2,490,978 ) ( 6,746,873 ) ( 4,987,185 ) Provision for income Taxes - - - - Net Loss $ ( 2,292,308 ) $ ( 2,490,978 ) $ ( 6,746,873 ) $ ( 4,987,185 ) Preferred Dividends ( 14,220 ) ( 14,220 ) ( 42,660 ) ( 89,347 ) Net Loss Applicable to Common Stockholders $ ( 2,306,528 ) $ ( 2,505,198 ) $ ( 6,789,533 ) $ ( 5,076,532 ) Net Loss per Common Share – Basic and Diluted $ ( 0.22 ) $ ( 0.24 ) $ ( 0.65 ) $ ( 0.53 ) Weighted Average Number of Shares Outstanding – Basic and Diluted 10,498,802 10,494,560 10,498,802 9,602,666 See accompanying notes to condensed financial statements. 4 Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.) Statement of Stockholders’ Equity (Unaudited) For the Three Months Ended September 30, 2022 and September 30, 2021 Shares Outstanding Preferred Stock Shares Outstanding Common Stock Paid-in Capital Accumulated Deficit Total Preferred Stock Common Stock Additional Shares Outstanding Preferred Stock Shares Outstanding Common Stock Paid-in Capital Accumulated Deficit Total Balances, June 30, 2022 465 $ 1 10,498,802 $ 10,499 $ 53,876,218 $ ( 45,076,185 ) $ 8,810,533 Net Loss - - - - - ( 2,292,308 ) ( 2,292,308 ) Preferred Stock Dividends - - - - 14,220 ( 14,220 ) - Stock Options Issued for Third Party Services - - - - 973 - 973 Stock Options Awarded to Directors for Services - - - - 27,152 - 27,152 Stock Options Awarded to Employees - - - - 275,418 - 275,418 Balances, September 30, 2022 465 $ 1 10,498,802 $ 10,499 $ 54,193,981 $ ( 47,382,713 ) $ 6,821,768 Preferred Stock Common Stock Additional Shares Outstanding Preferred Stock Shares Outstanding Common Stock Paid-in Capital Accumulated Deficit Total Balances, June 30, 2021 465 $ 1 10,493,598 $ 10,494 $ 52,058,003 $ ( 35,676,342 ) $ 16,392,156 Preferred Stock Dividends - - - - 14,220 ( 14,220 ) - Shares Securities Issued to Directors for Services - - - - 282,306 - 282,306 Securities Issued for Third Party Services - - - - 72,872 - 72,872 Stock Awarded to Employees - - 5,204 5 659,507 - 659,512 Net Loss - - - - - ( 2,490,978 ) ( 2,490,978 ) Balances, September 30, 2021 465 $ 1 10,498,802 $ 10,499 $ 53,086,908 $ ( 38,181,540 ) $ 14,915,868 See accompanying notes to condensed financial statements. 5 For the Nine Months Ended September 30, 2022 and September 30, 2021 Preferred Stock Common Stock Additional Shares Outstanding Preferred Stock Shares Outstanding Common Stock Paid-in Capital Accumulated Deficit Total Balances, December 31, 2021 465 $ 1 10,498,802 $ 10,499 $ 53,442,431 $ ( 40,593,180 ) $ 12,859,751 Net Loss - - - - - ( 6,746,873 ) ( 6,746,873 ) Preferred Stock Dividends - - - - 42,660 ( 42,660 ) - Stock Options Issued for Third Party Services - - - - 24,463 - 24,463 Stock Options Awarded to Directors for Services - - - - 70,594 - 70,594 Stock Options Awarded to Employees - - - - 613,833 - 613,833 Balances, September 30, 2022 465 $ 1 10,498,802 $ 10,499 $ 54,193,981 $ ( 47,382,713 ) $ 6,821,768 Preferred Stock Common Stock Additional Shares Outstanding Preferred Stock Shares Outstanding Common Stock Paid-in Capital Accumulated Deficit Total Balances, December 31, 2020 715 $ 1 5,995,320 $ 5,995 $ 38,262,744 $ ( 33,105,008 ) $ 5,163,732 Common Shares Sold in Public Offerings - - 3,901,783 3,902 14,865,997 - 14,869,899 Extinguishment of Derivative Liability - - - - ( 1,092,441 ) - ( 1,092,441 ) Preferred Stock Dividends - - 19,000 19 89,328 ( 89,347 ) - Common Shares Issued Upon Conversion of Preferred Shares ( 250 ) - 100,000 100 ( 100 ) - - Common Shares issued for Exercise of Common Warrants - - 475,995 476 1,135,534 - 1,136,010 Stock Options Awarded to Directors - - - - 404,580 - 404,580 Securities Issued for Third Party Services - - 1,500 2 128,807 - 128,809 Stock Options Awarded to Employees - - 5,204 5 893,426 - 893,431 Offering Costs - - - - ( 1,600,967 ) - ( 1,600,967 ) Net Loss - - - - - ( 4,987,185 ) ( 4,987,185 ) Balances, September 30, 2021 465 $ 1 10,498,802 $ 10,499 $ 53,086,908 $ ( 38,181,540 ) $ 14,915,868 See accompanying notes to condensed financial statements. 6 Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.) Condensed Statements of Cash Flows (Unaudited) September 30, 2022 September 30, 2021 Nine Months Ended September 30, 2022 September 30, 2021 OPERATING ACTIVITIES Net Loss $ ( 6,746,873 ) $ ( 4,987,185 ) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Noncash Expenses: Depreciation and Amortization 88,302 76,502 Gain on Derivative Liability - ( 1,092,441 ) Stock-Based Compensation - Employees 613,833 893,431 Stock-Based Compensation - Third Party Services 24,463 128,809 Stock-Based Compensation - Directors 70,594 404,580 Change in Assets and Liabilities: Accounts Receivable 44,422 ( 335,178 ) Inventory ( 257,352 ) ( 196,896 ) Prepaid Assets ( 63,446 ) ( 13,940 ) Accounts Payable 197,105 94,220 Deferred Revenue ( 19,166 ) 7,523 Accrued Expenses ( 338,297 ) 233,985 NET CASH USED IN OPERATING ACTIVITIES ( 6,386,415 ) ( 4,786,590 ) INVESTING ACTIVITIES Purchase of Property and Equipment ( 83,848 ) ( 116,631 ) Purchase of Intangible Assets ( 176,104 ) ( 138,141 ) NET CASH USED IN INVESTING ACTIVITIES ( 259,952 ) ( 254,772 ) FINANCING ACTIVITIES Gross Proceeds from Public and Private Issuances of Securities - 14,869,899 Less Offering Costs - ( 1,600,967 ) Proceeds from Exercise of Warrants - 1,136,010 NET CASH PROVIDED BY FINANCING ACTIVITIES - 14,404,942 NET CHANGE IN CASH FOR PERIOD ( 6,646,367 ) 9,363,580 CASH AT BEGINNING OF PERIOD 11,447,047 3,700,814 CASH AT END OF PERIOD $ 4,800,680 $ 13,064,394 Supplemental Disclosures: Noncash Investing and Financing Activities Disclosure: Issuance of Common Shares for Preferred Dividends $ - $ 89,347 Other Noncash Operating Activities Disclosure: Issuance of Securities for services $ 95,057 $ 533,387 Disclosure of Cash Paid for: Interest $ 5,367 $ 5,434 Income Taxes $ - $ - See accompanying notes to condensed financial statements. 7 SIGMA ADDITIVE SOLUTIONS, INC. (FORMERLY SIGMA LABS, INC.) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS September 30, 2022 NOTE 1 - Summary of Significant Accounting Policies Nature of Business -Sigma Additive Solutions, Inc. (formerly Sigma Labs, Inc.), a Nevada corporation (“Company,” “Sigma,” “we,” “us” and “our”), was founded by a group of scientists, engineers and businessmen to develop and commercialize novel and unique manufacturing and materials technologies. Sigma believes that some of these technologies will fundamentally redefine conventional quality assurance and process control practices by embedding them into the manufacturing processes in real time, enabling process intervention and ultimately leading to closed loop process control. The Company anticipates that its core technologies will allow its customers to combine advanced manufacturing quality assurance and process control protocols with novel materials to achieve breakthrough product potential in many industries, including aerospace, defense, oil and gas, bio-medical, and power generation. Basis of Presentation - The accompanying financial statements have been prepared by the Company in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2022 and 2021 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The Company suggests these condensed financial statements be read in conjunction with the December 31, 2021 audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year. Reclassification - Certain amounts in prior-period financial statements have been reclassified for comparative purposes to conform to presentation in the current-period financial statements. Fair Value of Financial Instruments - The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables, accounts payable, and accrued liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The Company does not use derivative instruments for hedging of market risk or for trading or speculative purposes. On March 26, 2021, the Company issued warrants to purchase an aggregate of 2,190,000 shares of common stock in a private placement concurrently with a registered direct offering of our common stock The warrants became exercisable on May 24, 2021 , the date the Company obtained stockholder approval to increase its authorized common shares from 12,000,000 to 24,000,000 , and will expire on May 24, 2023 . Pursuant to ASC 815.40.25.10, such warrants were accounted for as a derivative liability because the Company did not have sufficient authorized and unissued shares of common stock available to settle the warrants at the issue date. On May 24, 2021, upon receiving stockholder approval to increase its authorized common shares, the Company reclassified the warrant liability to equity pursuant to ASC 815.40.35.8. For the nine months ended September 30, 2021, the Company recorded a gain of $ 1,092,441 due to the change in the fair value of the derivative liability as measured on a recurring basis. Loss Per Share – The computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with ASC Topic No. 260, “Earnings Per Share.” Shares underlying the Company’s outstanding warrants, options and preferred stock were excluded due to the anti-dilutive effect they would have on the computation. At September 30, 2022 and 2021, the Company had the following common shares underlying these instruments: Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share September 30, 2022 2021 Warrants 3,825,781 3,987,931 Stock Options 1,784,942 1,400,407 Preferred Stock 148,918 124,483 Total Underlying Common Shares 5,759,641 5,512,821 8 The following table shows the amounts used in computing loss per share and the effect on net loss and the weighted average number of shares of dilutive potential common stock for the periods ended September 30, 2022 and 2021: Schedule of Computing Loss Per Share 2022 2021 2022 2021 Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 Net Loss per Common Share - Basic and Diluted $ ( 0.22 ) $ ( 0.24 ) $ ( 0.65 ) $ ( 0.53 ) Loss Applicable to Common Stockholders (numerator) $ ( 2,306,528 ) $ ( 2,505,198 ) $ ( 6,789,533 ) $ ( 5,076,532 ) Weighted Average Number of Common Shares Outstanding Used in Loss Per Share During the Period (denominator) 10,498,802 10,494,560 10,498,802 9,602,666 Accounting Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. Significant accounting estimates that may materially change in the near future are impairment of long-lived assets, values of stock compensation awards and stock equivalents granted as offering costs, and allowance for bad debts and inventory obsolescence. Revenue Recognition – The Company’s revenue is derived primarily from sales of our software and related hardware suite under perpetual licenses and from providing engineering services under contracts. The Company recognizes revenue in accordance with ASC Topic No. 606. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers . ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior U.S. GAAP and replaced it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In general, we determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services. In January 2022, the Company began offering a subscription option to its customers, pursuant to which it leases its PrintRite3D platform for terms between 12 and 36 months and provide technical support and maintenance for the term of the arrangement, as well as installation and training. The Company has determined these are leases because they relate to discrete pieces of equipment to which customers have the right to substantially all the economic benefit from and exclusive right to use during the term of the arrangement. These leases are classified as operating leases and the Company retains title to the underlying equipment. The leases may be renewed for successive one-year terms unless notice is given by either party of its intent not to renew at least 30 days before the end of the lease term. For leases with 36-month terms, the lessee may terminate the agreement after the first 18 months with 30-days written notice. Some, but not all, of the leases permit lessees to purchase the equipment at any time at an amount that approximates fair value and are not reasonably certain to be exercised at the inception of the lease. There are no anticipated variable lease payments at the inception of the lease. There are two non-lease components in the arrangement that consist of technical support and maintenance, and installation and training. The Company has elected the single component practical expedient to combine the technical support and maintenance with the lease as they have the same pattern of transfer. The installation and training component does not have the same pattern of transfer; therefore, this component is not eligible for the single component practical expedient. The consideration has been allocated on a relative fair value basis of the underlying lease and non-lease components. The Company has estimated the residual value of the leased equipment based on its useful life, and the ability to refurbish and sell the equipment, as well as the Company’s ability to componentize the hardware and utilize subassemblies in other products. Revenue from these operating leases for the three and nine months ended September 30, 2022 was $ 2,834 and $ 17,006 , respectively. 9 Minimum Lease Payments Receivable Minimum lease payments receivable for each of the succeeding years ending December 31 are as follows: Schedule of Minimum Lease Payments Receivable Year ending December 31, Amount 2022 (remaining) $ 8,503 2023 $ 8,503 2024 - 2025 and thereafter - Total $ 17,006 Equipment Underlying Operating Leases: Equipment under operating leases as of September 30, 2022 were comprised of the following: Schedule of Assets underlying Operating Leases September 30, 2022 PrintRite 3D Hardware $ 38,949 Accumulated Depreciation 4,173 Net Book Value $ 34,776 The Company is depreciating the underlying equipment over its useful life of 7 years, but certain subassemblies and components may have a longer economic life. NOTE 2 – Inventory At September 30, 2022 and December 31, 2021, the Company’s inventory was comprised of the following: Schedule of Inventory September 30, 2022 December 31, 2021 Raw Materials $ 264,558 $ 202,015 Work in Process 420,420 224,079 Finished Goods 282,454 283,986 Total Inventory $ 967,432 $ 710,080 NOTE 3 – Intangible Assets The Company’s intangible assets consist of patents and patent applications. Provisional patent applications are not amortized until a patent has been granted. Once a patent is granted, the Company will amortize the related costs over the estimated useful life of the patent. If a patent application is denied, then the costs will be expensed at that time. During 2022, $ 126,231 of costs related to patents issued to us during 2022 were reclassified from provisional patent application to patents and began to be amortized as of the date of issue. The following is a summary of definite-life intangible assets less accumulated amortization as of September 30, 2022 and December 31, 2021, respectively: Summary of Definite-life Intangible Assets and Accumulated Amortization September 30, 2022 December 31, 2021 Provisional Patent Applications $ 725,164 $ 675,291 Patents 426,601 300,370 Less: Accumulated Amortization ( 67,560 ) ( 50,550 ) Net Intangible Assets $ 1,084,205 $ 925,111 Amortization expense on intangible assets was $ 17,010 and $ 22,998 for the nine months ended September 30, 2022 and 2021, respectively. 10 The estimated aggregate amortization expense for each of the following years ending December 31 is as follows: Schedule of Aggregate Amortization Expense 2022 (Remaining) $ 6,153 2023 24,610 2024 24,610 2025 24,610 Thereafter 279,058 Intangible asset and amortization expense $ 359,041 NOTE 4 – Deferral of Social Security Tax Payments Pursuant to sections 2302(a)(1) and (a)(2) of the CARES Act, the Company has elected to defer payments of its share of Social Security tax due during the “payroll tax deferral period.” The payroll tax deferral period began on March 27, 2020 and ended on December 31, 2020. At September 30, 2022, the total remaining amount of the deferral was $ 37,728 . Per the terms of the deferral program, such amount is due by December 31, 2022 , without interest. NOTE 5 - Stockholders’ Equity Common Stock On May 24, 2021, at a Special Stockholders Meeting, our stockholders approved an increase in the authorized shares of common stock from 12,000,000 to 24,000,000 . In January 2021, the Company closed a public offering of its securities in which it issued 1,711,783 shares of common stock at a price of $ 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 and its designees 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. 11 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 in which it issued 2,190,000 shares of common stock at a price of $ 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 (“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 commencing May 24, 2021 , the date the Company obtained 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 public 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 % of the number of shares of our Common Stock issued upon such exercise. In March 2021, Company issued 1,500 shares of common stock valued at $ 4.99 per share to an investor relations firm previously engaged by the Company as partial compensation for services rendered. Preferred Stock The Company is authorized to issue 10,000,000 shares of preferred stock, $ 0.001 par value, of which 465 shares were issued and outstanding at September 30, 2022 and December 31, 2021. In January 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Institutional Private Placement”), pursuant to which the Company issued and sold 1,640 shares of the Company’s newly created Series D Convertible Preferred Stock (the “Series D Preferred Stock”) at an initial stated value of $ 1,000 per share. Dividends accrue at a rate of 9 % per annum (subject to increase upon the occurrence (and during the continuance) of certain triggering events described therein) and are payable monthly 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 the event the Company issues or sells, or is deemed to have issued or sold, shares of Common Stock for a consideration per share less than a price equal to the conversion price then in effect). Alternatively, a holder may at any time convert all, or any part, of its Series D Preferred Shares at an alternative conversion price equal to 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-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 Stock being redeemed . At September 30, 2022, there were 132 shares of Series D Preferred Stock outstanding, which if converted as of September 30, 2022, including the make-whole dividends, would result in the issuance of 87,267 shares of common stock. Concurrent with the Institutional Private Placement, the Company entered into a Securities Purchase Agreement pursuant to which the Company issued and sold to certain of its directors and the Company’s then largest stockholder 333 shares of the Company’s newly created Series E Convertible Preferred Stock (the “Series E Preferred Stock”) at an initial stated value of $ 1,000 per share. Dividends accrue at a dividend rate of 9 % per annum and are payable monthly in kind by the increase of the stated value of the Series E Preferred Stock by said amount. The Series E Preferred Stock is initially convertible into 48,544 shares of common stock (subject to adjustment for stock splits, dividends, recapitalizations and similar events). At September 30, 2022, 333 shares of Series E Preferred Stock were outstanding, which if converted as of September 30, 2022, including the make-whole dividends, would result in the issuance of 61,651 shares of common stock. 12 Stock Options As of September 30, 2022, an aggregate of 450,617 shares of common stock were reserved for future issuance under the Company’s 2013 Equity Incentive Plan. In March 2022, the Company granted options to its non-employee directors to purchase up to an aggregate of 56,000 shares of common stock at a strike price of $ 2.50 . As of September 30, 2022, 75 % of such grants were fully vested and exercisable, and the remaining 25 % will vest on December 31, 2022 subject to the directors remaining in our service through such date. During the nine months ended September 30, 2022, the Company granted twelve employees options to purchase up to an aggregate of 228,973 shares of common stock in connection with their employment. The options have a strike price of $ 2.50 with vesting periods ranging from immediately upon issuance to three years beginning July 1, 2022, provided that the employees remain employed by the Company on such dates. In addition, the Company granted its President and CEO options to purchase up to 135,000 shares of common stock in connection with his employment. The options have a strike price of $ 2.50 and will vest in equal monthly installments over 36 months beginning March 2022, provided that the President and CEO remains employed by the Company on such dates. Also, during the nine months ended September 30, 2022, the Company granted two consultants options to purchase up to an aggregate of 14,000 shares of common stock for services to be rendered. The options have a strike price of $ 2.50 and are fully vested. 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 grant date, The exercise prices will not be less than 100% of the fair market value of a share on the date of grant of the option. Stock options are typically granted throughout the year and generally vest over a period from one to three years of service and expire five years from the grant date, 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 stock-based compensation expense included in the statements of operations for the nine months ended September 30, 2022 and 2021 was $ 613,833 and $ 893,431 respectively, all of which is related to stock options. The fair value of stock-based awards was estimated using the Black-Scholes model with the following weighted average assumptions for the nine months ended September 30, 2022 and 2021: Schedule of Share Based Payments Award Stock Options Valuation Assumptions 2022 2021 Dividend yield 0.00 % 0.00 % Risk-free interest rate 0.95 - 3.23 % 0.19 - 0.70 % Expected volatility 106.40 - 109.97 % 116.8 - 123.8 % Expected life (in years) 5 5 Option activity for the nine months ended September 30, 2022 and the year ended December 31, 2021 was as follows: Schedule of Stock Option Activity Options Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Yrs.) Aggregate Intrinsic Value ($) 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 - Granted 433,973 2.50 4.64 - Exercised - - - - Forfeited or cancelled ( 44,913 ) 4.21 - - Options outstanding September 30, 2022 1,784,942 3.82 3.50 - Options expected to vest in the future as of September 30, 2022 534,242 2.91 4.08 - Options exercisable at September 30, 2022 1,250,700 4.21 3.25 - Options vested, exercisable, and options expected to vest at September 30, 2022 1,784,942 3.82 3.50 - 13 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of our common stock for those awards that have an exercise price below the market price of our common stock. At September 30, 2022, no option had an exercise price below the $ 0.815 closing price of our common stock as reported on The Nasdaq Capital Market. At September 30, 2022, there was $ 908,588 of unrecognized stock-based compensation expense related to unvested stock options with a weighted average remaining recognition period of 2.0 years. Stock Appreciation Rights On June 23, 2020, the board of directors (the “Board”) of the Company adopted the 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 stockholders of the Company; and (iii) promote the success of the Company’s business. The Plan provides for incentive awards only in the form of stock appreciation rights payable in cash (“SARs”) and no shares of common stock are reserved or 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 vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant. During the nine months ended September 30, 2022, the Company granted a total of 404,975 SARs to fifteen employees at exercise prices ranging from $ 1.30 to $ 2.50 with vesting periods ranging from immediately upon issuance to three years, beginning January 3, 2022, provided that the employees remain employed by the Company on such dates. The SARs expire on the fifth anniversary of the grant date. Also, during the nine months ended September 30, 2022, the Company granted 406,887 SARs to our President and Chief Executive Officer at exercise prices ranging from $ 1.30 to $ 2.50 . Of the SARs, 30,000 will vest equally over 36 months beginning March 2022, 194,940 will vest over 36 months beginning July 1, 2022, and 181,947 will vest on March 15, 2025, in each case provided that the President and Chief Executive Officer remains an employee of the Company on such dates. The SARs will expire on the fifth anniversary of each of the grant dates. On March 31, 2022, the Company granted 3,000 SARs to a consultant as partial compensation for services pursuant to a consulting agreement at an exercise price of $ 2.50 . The SARs expire on the fifth anniversary of the grant date and are fully 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 SARs are revalued at each reporting date in accordance with ASC 718 “Compensation-Stock Compensation”, and any changes in fair value are reflected in the Statement of Operations 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 nine months ended September 30, 2022 and the year ended December 31, 2021: Schedule of Share Based Payments Award Stock Options Valuation Assumptions 2022 2021 Dividend yield 0.00 % 0.00 % Risk-free interest rate 0.82 - 2.79 % 0.39 - 0.40 % Expected volatility 108.38 - 119.02 % 123.0 % Expected life (in years) 5 5 14 SARs activity for the nine months ended September 30, 2022 and the year ended December 31, 2021 was as follows: Schedule of Stock Option Activity Options Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Yrs.) Aggregate Intrinsic Value ($) - 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 at December 31, 2021 370,624 3.15 4.24 - Granted 814,862 1.81 4.73 - Exercised - - - - Forfeited or cancelled - - - - SARs outstanding September 30, 2022 1,185,486 2.23 4.34 - SARs expected to vest in the future as of September 30, 2022 897,970 2.05 4.50 - SARs exercisable at September 30, 2022 287,516 2.80 3.84 - SARs vested, exercisable, and SARs expected to vest at September 30, 2022 1,185,486 2.23 4.34 - The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the market price of our common stock for those awards that have an exercise price below the market price of our common stock. At September 30, 2022, no SAR had an exercise price below the $ 0.815 closing price of our common stock as reported on The Nasdaq Capital Market . At September 30, 2022, there was $ 1,128,615 of unrecognized stock-based compensation expense related to unvested SARs with a weighted average remaining recognition period of 2.38 years. Warrants Warrant activity for the nine months ended September 30, 2022 and the year ended December 31, 2021 was as follows: Schedule of Warranty Activity Warrants Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Yrs.) Warrants outstanding at December 31, 2020 1,881,429 7.57 4.16 Granted 2,602,143 4.36 1.63 Exercised ( 495,641 ) 2.59 - Forfeited or cancelled - - - Warrants outstanding at December 31, 2021 3,987,931 6.10 2.10 Granted - - - Exercised - - - Forfeited or cancelled ( 162,150 ) 40.00 - Warrants outstanding at September 30, 2022 3,825,781 4.66 2.10 NOTE 6 - Subsequent Events On October 14, 2022, the Company received notice from The Nasdaq Stock Market (“Nasdaq”) that the closing bid price for our common stock had been below $ 1.00 per share for 30 consecutive business days, and that the Company therefore is not in compliance with the minimum bid price requirement for continued inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notice indicates that the Company has 180 calendar days, or until April 12, 2023, to regain compliance with this requirement. The Company may also be eligible for an additional 180 calendar days to regain compliance. The Company believes that it will regain compliance with the $ 1.00 minimum bid price requirement. 15