NOTE 7 – STOCKHOLDERS’ EQUITY 

Common stock issued for exercise of warrants

During the first quarter of 2019, the Company entered into an agreement with two shareholders who were also holders of warrants to purchase shares of common stock in the aggregate amount of 3,000,000 shares, to reduce the exercise price of these warrants to $0.55 from the original exercise price of $0.65 based on immediate exercise. Both shareholders exercised these warrants in March 2019 for proceeds to the Company of $1,650,000.  The Company also accepted warrant exercises in the second quarter of 2019 from three additional shareholders who were also holders of warrants to purchase shares of common stock in the aggregate amount of 934,581 shares. The exercise price of these warrants was also lowered to $0.55 from the original exercise price of $0.65 based on immediate exercise for further proceeds to the Company of $514,020. Further, during the second quarter of 2019, the Company issued 138,292 shares of common stock upon the cashless exercise of 651,982 common stock warrants.  Additionally, the Company also accepted warrant exercises in the third quarter of 2019 from two additional shareholders who were also holders of warrants to purchase shares of common stock in the aggregate amount of 275,000 shares of common stock for proceeds to the Company in the amount of $151,250.

Stock-Based Compensation

Stock-based compensation expense recognized under ASC 718-10 for the nine months ended September 30, 2019, was $35,017 for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At September 30, 2019, the total compensation cost for stock options not yet recognized was $39,155. This cost will be recognized over the remaining vesting term of the options of approximately one year.

Employee Stock Options

A maximum of 2,500,000 shares were made available for grant under the 2016 Plan, as amended, and all outstanding options under the Plan provide a cashless exercise feature. The identification of individuals entitled to receive awards, the terms of the awards, and the number of shares subject to individual awards, are determined by our Board of Directors or the Compensation Committee, at their sole discretion. The aggregate number of shares with respect to which options or stock awards may be granted under the 2016 Plan and the purchase price per share, if applicable, shall be adjusted for any increase or decrease in the number of issued shares resulting from a stock dividend, stock split, reverse stock split, recapitalization or similar event. As of September 30, 2019, and December 31, 2018, options to purchase 2,282,000 shares of common stock and 2,242,000 shares of common stock were outstanding under the 2016 Plan, respectively.

The Company has no expired employee stock options under the 2016 Plan at September 30, 2019.

On January 29, 2019, the Board of Directors appointed a new independent director and Chairman of the Compensation Committee. As a result of the appointment, the new director was granted 120,000 stock options exercisable at $1.00 per share vesting one year from the date of grant. On March 31, 2019, the President and Chief Operating Officer of Duos Technologies Inc., resigned from her positions. Due to the resignation, the individual forfeited 200,000 stock options previously granted.  On August 15, 2019, the Board of Directors appointed a new independent director and Chairman of the Audit Committee. As a result of the appointment, the new director was granted 120,000 stock options exercisable at $1.00 per share vesting one year from the date of grant.

Warrants

The following is a summary of activity for warrants to purchase common stock for the nine months ended September 30, 2019:

During the first quarter of 2019, the Company received $1,650,000 for the exercise of warrants for 3,000,000 shares of common stock.

During the second quarter of 2019, the Company received an aggregate of $514,020 for the exercise of warrants to purchase 934,581 shares of common stock. Also, during the second quarter of 2019, the Company issued 138,292 shares of common stock upon the cashless exercise of 651,982 common stock warrants.

During the third quarter of 2019, the Company received $151,250 for the exercise of warrants for 275,000 shares of common stock.