Note 9 - Stockholders’ (Deficit)

Capital Stock

The Company has 260,000,000 authorized shares of capital stock, consisting of 250,000,000 shares of Common Stock, par value $0.001, and 10,000,000 shares of Preferred Stock, par value $0.001 per share.

On May 13, 2021, the Company entered into an underwritten public offering of an aggregate of 1,600,000 units, each consisting of one share of the Company’s Common Stock, par value $0.001 per share, together with one warrant to purchase one share of Common Stock at an exercise price equal to $7.425 per share of Common Stock.

The public offering price was $6.75 per Unit and the underwriters agreed to purchase 1,600,000 Units at a 7.5% discount to the public offering price. The Company granted the representative a 45-day option to purchase an additional 240,000 shares of Common Stock and/or an additional 240,000 Warrants, in any combination thereof, to cover over-allotments. On May 15, 2021, the representative exercised the over-allotment option to purchase an additional 240,000 Warrants to purchase 240,000 shares of Common Stock. The net proceeds from the offering were $9.5 million.

On May 14, 2021, the Company effected a 1-for-40 reverse stock split. As a result, all share information in the accompanying financial statements has been adjusted as if the reverse stock split happened on the earliest date presented. 

On July 21, 2021, the Company entered into a securities purchase agreement with certain accredited institutional investors resulting in the raise of $8,305,000 in gross proceeds to the Company. Pursuant to the terms of the purchase agreement, the Company agreed to sell, (i) an aggregate of 1,375,000 shares of the Company’s Common Stock, par value $0.001 per share and (ii) Warrants to purchase an aggregate of 1,031,250 shares of the Company’s Common Stock at an exercise price of $6.15 per share, subject to adjustment.

The placement agent was entitled to a cash fee of 6.5% of the gross proceeds of the Offering and the reimbursement for certain out-of-pocket expenses up to $50,000. The net proceeds from the offering were $7.5 million.

During the year ended December 31, 2021, employees exercised 6,592 options via cashless exercise, into 5,060 shares of common stock.

During the year ended December 31, 2021, warrant holders exercised 455,390 Warrants into Common Stock. The Company received $3,381,271 for these Warrants.

On May 1, 2022, the Company issued 125,000 shares of its Restricted Common Stock to employees in exchange for services at a fair value of $400,000.

During the year ended December 31, 2022, employees exercised 3,334 options into shares of Common Stock. The Company received $6,934 for these options.

Common Stock Options

A summary of the Company’s options activity and related information follows:

Share-based compensation expense for options totaling $282,193 and $171,798 was recognized in our results for the years ended December 31, 2022, and 2021, respectively.

The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options.

The risk-free interest rate assumption is based upon observed interest rates on zero-coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of the Company over a period equal to the expected life of the awards.

As of December 31, 2022, there was $335,272 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately 2.03 years.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the years ended December 31, 2022, and 2021, are set forth in the table below.

Share-based awards, restricted stock award (“RSAs”)

On March 31, 2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $40,375. The shares vest one year after issuance.

On June 30, 2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $30,625. The shares vest one year after issuance.

On September 30, 2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $25,000. The shares vest one year after issuance.

On December 31, 2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $18,500. The shares vest one year after issuance.

A summary of the activity related to RSUs for the year ended December 31, 2022, is presented below:

Stock-based compensation for RSU’s has been recorded in the consolidated statements of operations and totaled $52,285 for the year ended December 31, 2022.

Common Stock Warrant

A summary of the Company’s warrant activity and related information follows:

Preferred Stock

Liquidation preference

Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal to the Original Issue Price for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series A Preferred Stock as of the date of the Liquidation Event. No Preferred shares are issued as of December 31, 2021.

Conversion

The number of shares of Common Stock to which a share of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined herein) for such share of Series A Preferred Stock. The Conversion Price for the Series A Preferred Stock shall initially be equal to $0.02 and shall be adjusted from time to time.

Voting

Each holder of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of the Corporation (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Class B Common Stock into which such shares of Series A Preferred Stock could be converted.

Dividends

Each share of Series A Preferred Stock, in preference to the holders of all common stock, shall entitle its holder to receive, but only out of funds that are legally available therefore, cash dividends at the rate of ten percent (10%) per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding annually unless paid by the Company. On May 18, 2021, the Company converted 1,401,786 shares of Series A Preferred Stock into 43,806 shares of common stock. As part of this transaction, the Company also paid $1,179,357 the accrued and unpaid dividends. Accrued dividends at December 31, 2021, were $0.