Annual report pursuant to Section 13 and 15(d)

Stockholders' equity

Stockholders' equity

12 Months Ended

Dec. 31, 2019

Stockholders’ equity

Common Stock

As discussed in Note 4. "Acquisition of American DG Energy Inc.", on May 18, 2017, the Company completed the acquisition of ADGE, by means of a stock-for-stock merger, of 100% of the outstanding common shares of ADGE in exchange for 4,662,937 shares of the Company's newly issued common stock.

The holders of Common Stock have the right to vote their interest on a per share basis. At December 31, 2019 and 2018, there were 24,849,261 and 24,824,746 shares of Common Stock outstanding, respectively.

Preferred Stock

On February 13, 2013, the Company authorized 10 million shares of preferred stock. As of December 31, 2019, no preferred shares were issued or outstanding.

Stock-Based Compensation

The Company adopted the 2006 Stock Option and Incentive Plan (the “Plan”), under which the board of directors may grant incentive or non-qualified stock options and stock grants to key employees, directors, advisors and consultants of the Company. The Plan was amended at various dates by the Board of Directors to increase the reserved shares of common stock issuable under the Plan to 3,838,750 as of December 31, 2019, and in June 2017 stockholders approved an amendment to extend the termination date of the Plan to January 1, 2026 and to ratify all Company option grants made after January 1, 2016 (the “Amended Plan”).

Stock options vest based upon the terms within the individual option grants, with an acceleration of the unvested portion of such options upon a change in control event, as defined in the Amended Plan. The options are not transferable except by will or domestic relations order. The option price per share under the Amended Plan cannot be less than the fair market value of the underlying shares on the date of the grant. The number of shares remaining available for future issuance under the Amended Plan as of December 31, 2019 and 2018 was 1,906,180 and 1,990,980, respectively.

In 2019 the Company granted nonqualified options to purchase an aggregate of 88,500 shares of common stock in a range of $3.40 and $3.80 per share to certain officers and employees. These options have a vesting schedule of four years and expire in ten years. The fair value of the options issued in 2019 was $89,772. The weighted-average grant date fair value of stock options granted during 2019 was $1.01 per option.

In 2018, the Company granted nonqualified options to purchase an aggregate of 367,500 shares of common stock for between $2.30 and $4.04 per share to certain employees and a director. These options have a vesting schedule of four years and expire in ten years. The fair value of the options issued in 2018 was $365,054. The weighted-average grant date fair value of stock options granted during 2018 was $0.99 per option.

In 2019 and 2018, option holders exercised 24,515 and 57,854 options, respectively, with an aggregate intrinsic value of $19,794 and $137,085, respectively.

Stock option activity for the year ended December 31, 2019 was as follows:



Common Stock Options	Number of Options		Exercise Price Per Share	Weighted Average Exercise Price		Weighted Average Remaining Life	Aggregate Intrinsic Value
Outstanding, December 31, 2018	1,292,589		$0.79-$10.33	$	3.52	5.93 years	$	671,331
Granted	88,500		$3.40-$3.80	3.70
Exercised	(24,515	)	$1.20-$2.60	1.37			19,794
Canceled and forfeited	(3,700	)	$3.22-$4.50	3.46
Outstanding, December 31, 2019	1,352,874		$0.79-$10.33	$	3.57	5.30 years	$	95,381
Exercisable, December 31, 2019	953,499			$	3.54		$	95,381
Vested and expected to vest, December 31, 2019	1,292,968			$	3.57		$	95,381

Using the Company's historical forfeiture rate of 15%, the table above uses said rate in the expected to vest calculation. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the average volatility of four comparable publicly traded companies. The average expected life was estimated using the simplified method to determine the expected life based on the vesting period and contractual terms, since it does not have the necessary historical exercise data to determine an expected life for stock options. The Company uses a single weighted-average expected life to value option awards and recognizes compensation on a straight-line basis over the requisite service period for each separately vesting portion of the awards. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant.

The weighted average assumptions used in the Black-Scholes option pricing model for options granted in 2019 and 2018 are as follows:



Stock option awards:	2019	2018
Expected life	6.25 years	6.25 years
Risk-free interest rate	2.56%	2.73%
Expected volatility	22.50%	20.90%

During the years ended December 31, 2019 and 2018, the Company recognized stock-based compensation expense of $163,464 and $181,188, respectively, related to the issuance of stock options. No tax benefit was recognized related to the stock-based compensation expense recorded during the years. At December 31, 2019 and 2018, the total compensation cost related to unvested stock option awards not yet recognized is $340,503 and $415,941, respectively. This amount will be recognized over a weighted average period of 1.67 years.