NOTE 5 - STOCKHOLDERS’ EQUITY (DEFICIT)

Equity Sales

During the three months ended June 30, 2024, the Company sold common stock in 9 private unregistered transactions to related parties resulting in total proceeds of $659,999 and the issuance of 83,887 shares of common stock.  The Company had no sales of common stock in the three months ended June 30, 2023.

During the six months ended June 30, 2024, the Company sold common stock in 29 private unregistered transactions to investors resulting in total proceeds of $1,763,325 and the issuance of 491,186 shares of common stock.  Included in the totals are 140,553 shares of common stock sold to related parties for proceeds of $790,781. The Company had no sales of common stock in the six months ended June 30, 2023.

Warrants

In the three months ended June 30, 2024 the Company issued 698 warrants to an investor under a board approved private fund raising program.

Equity Compensation

Stock Based Compensation

For the quarter ended June 30, 2024, the Company recognized expense of $7,549,655 for equity compensation to members of the Board of Directors and certain employees for restricted stock awards and option grants.  The total expense amount was related to new equity grants in the present period plus equity awards from prior periods.  $2,025,580 of the total expense for the quarter was related to R&D and the remaining $5,524,075 was for G&A. During the three months ended June 30, 2023, 65,268 options were granted to directors of the Company.  The Company recorded compensation expense for issued grants during the three months ended June 30, 2023 of $227,808.

For the six months ended June 30, 2024, the Company expensed $7,661,759 for equity compensation to members of the Board of Directors and certain employees for restricted stock awards and option grants.  The total expense amount was related to new equity grants in the present period plus equity awards from prior periods.  $2,060,228 of the total expense for the quarter was related to R&D and the remaining $5,601,531 was for general and administrative expenses (G&A). During the six months ended June 30, 2023, 65,268 were granted to directors and employees of the Company. As a result of these and previous grants, the Company recorded compensation expense of $469,911 for this period.

Restricted Stock Awards

During the three months and six months ended June 30, 2024 the Board of Directors awarded 445,490 Restricted Stock Awards (RSA) to the non-employee directors of the Company under the Equity Incentive Plan for Non-Employee Directors.  Of this total 18,819 RSA were issued to non-employee directors on June 11, 2024 pursuant to the Amended Non-Employee Director Compensation Policy whereby each non-employee director receives $50,000 in value of RSA calculated from the closing price of the Company’s common stock on that day. The RSA vest 25% on each of the 3 month, 6 month, and 9 month anniversaries of the award, and 25% on the day prior to the Company's 2025 annual shareholder meeting. For quarter ended June 30, 2024, the Company recognized $16,188 in directors compensation expense for these awards. The remaining 426,671 RSA were awarded by the Board to the non-employee directors of the Board under several Board approved equity compensation actions.

Director Stock Option Replacement Program

The Company had issued stock options to its non-employee directors pursuant to the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides that the Board may cancel outstanding options and make a substitute grant of new options or other equity-based awards under the 2021 Plan or another equity plan of the Company (the “Director Stock Option Replacement Program”). On June 5, 2024, pursuant to the Director Stock Option Replacement Program, 127,364 shares of restricted stock were granted under the Director Equity Plan to replace all 62,451 outstanding options that were previously granted to non-employee directors under the 2021 Plan. Replacement shares were granted under the newly established Equity Incentive Plan for Non-Employee Directors.  The RSA vested immediately on the date of the grant.  The Company recognized $678,268 of expense in the three months ended June 30, 2024.

Stock Award Grant

On May 31, 2024, the Board granted common stock RSAs with a value of $300,000 under the Director Equity Plan to director Alison Cornell. The 37,688 RSA shares awarded were determined based on the closing price of the Company’s stock on the date of grant of $7.96 per share. The Board determined that this award to Ms. Cornell is an award for special or extraordinary services and was exempt from the annual limitation on awards to non-employee directors set forth in the Director Equity Plan. 

Stock Award in Lieu of Unpaid Directors’ Fees

On May 31, 2024, the Board approved a Stock in Lieu of Unpaid Director's fees that would allow for the granting of a total of 261,619 common stock RSAs to the non-employee Board members in lieu of unpaid non-employee director service fees earned during the calendar year ending December 31, 2023.  In aggregate the Company owed the three non-employee board members $172,670 in fees.  These unpaid amounts were grossed up for taxes at an assumed tax rate of 45% and the number of shares was determined based on the Company’s closing stock price on December 29, 2023 of $1.20 per share. 

The value of the shares granted to the non-employee directors pursuant to this exchange of stock in lieu of unpaid cash fees were exempted from the annual limitation of awards to non-employee directors set forth in the Director Equity Plan. These shares awards will be issued under the Director Equity Plan and will be subject to provisions thereof.  The RSA issued under this program vested 50% immediately on the date of grant, and the remaining 50% will vest on January 1, 2025.

The Company determined the value of these awards based on the market price on the grant date of $7.96 per share and recognized $1,160,832 of expense in the three months ended June 30, 2024, for the vested portion of these awards in lieu of unpaid directors fees, and at the same time wrote off $172,670 in related party accounts payable.

No RSA was issued by the Company in the three months and six months ended June 30, 2023.

Common Stock Options

During the three months and six months ended June 30, 2024, the Company awarded options underlying 1,031,425 shares of common stock to executives and employees under the 2021 Plan.  The Company recognized compensation expense for these awards and options that were previously granted to executives and employees of $5,394,367 and $5,487,178 for the three month and six month periods ended June 30, 2024, respectively.

CEO 2023 Equity Award

On June 5, 2024, the Board awarded 50,251 common stock options to the Company’s Chief Executive Officer in exchange for a prior agreed to cash payment yet unpaid in the amount of $400,000.  The strike price of $7.96 was set as the closing market price on the grant date and the options vested immediately upon issuance.  The Company used the Black Scholes option pricing model to determine the compensation expense of $338,815 for the award grant. The Black Scholes pricing model used the following assumptions: term of 5 years; volatility 122.46%; annual rate of dividends 0%; discount rate 4.29%.

Employee Stock Option Replacement Program

On June 5, 2024, pursuant to the Employee Stock Option Replacement Program, 981,174 common stock option shares were approved by the Board of Directors from the 2021 Plan to replace all 230,064 outstanding options that were previously granted to executive and employees under both the 2019 Plan and the 2021 Plan. Replacement shares were granted under the existing 2021 Plan. The Company used the Black Scholes option pricing model to determine the compensation expense of $5,055,552 for these award grants for the three months ending June 30, 2024. The Company determined the new options awarded under the Employee Stock Option Replacement Program to be modifications of existing awards and as such the Company will account for the awards by continuing to expense the original option awards as well as expensing the value of the new awards less the value of the old awards revalued at the conditions at the time of new awards. The Company valued the new awards using the Black Scholes pricing model with the following assumptions: option agreement term of 10 years; volatility 122.46%; annual rate of dividends 0%; discount rate 4.29%.

In the three months ending June 30, 2023, 10,878 options were granted to directors of the Company.  The Company recorded compensation expense for issued grants during the three months ended June 30, 2023 and for previous grants in the amount of $227,808 for this period. During the six months ended June 30, 2023, 10,878 stock options were granted to directors of the Company. As a result of these and previous grants, the Company recorded compensation expense of $469,911 in that six month period.

The fair value of stock options was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility.  In considering the expected term of the options, the Company employs the simplified method. The Company uses this method as it does not have a history of option exercises to establish a robust estimated term based on experience. The simplified term is used for the determination of expected volatility as well as the identification of the risk-free rate.

Equity Incentive Plan for Non-Employee Directors

On May 31, 2024, the Board of Directors adopted the 2024 Equity Incentive Plan for Non-Employee Directors (the “Director Equity Plan”).  Material features of the Director Equity Plan are:

Non-employee directors are eligible to participate in the Director Equity Plan. As of June 30, 2024, 429,510 shares remain available to be issued under the Director Equity Plan.

The foregoing description of the Director Equity Plan is qualified in its entirety by reference to the full text of the Director Equity Plan, which is filed as Exhibit 10.1 hereto and incorporated herein by reference.

2021 Equity Incentive Plan

On October 12, 2021, after approval from the stockholders at the Company’s 2021 annual meeting of stockholders, the Company adopted the 2021 Plan for the purpose of enhancing the Company’s ability to attract and retain highly qualified directors, officers, key employees and other persons and to motivate such persons to improve the business results and earnings of the Company by providing an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. The 2021 Plan is administered by the compensation committee of the Board who will, amongst other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2021 Plan. Pursuant to the 2021 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, unrestricted shares and dividend equivalent rights. The 2021 Plan has a duration of 10 years.

Subject to adjustment as described in the 2021 Plan, the aggregate number of shares of common stock available for issuance under the 2021 Plan is initially set at 1,000,000 shares; this number is automatically increased each January 1st by an amount equal to 5% of the number of common stock shares outstanding at that date, resulting in an increase in available shares under the 2021 Plan at January 1, 2024 of 119,117. On May 31, 2024, the Company’s Board of Directors amended the 2021 Plan such that the total number of shares of common stock available for issuance under the 2021 Plan would be 1,000,000 as of that date, an additional increase of 789,324 shares. 

On June 5, 2024, pursuant to a proposed equity compensation exchange approved by the Board of Directors, various option awards underlying 292,515 shares of common stock were forfeited by employees and members of the Board of Directors in exchange for replacement equity awards as approved by the Board of Directors. As of June 30, 2024, 1,031,425 options have been issued under the 2021 Plan, and 261,090 shares remained available for issuance.

2019 Omnibus Long-Term Incentive Plan

Prior to the adoption of the 2021 Equity Incentive Plan, the Company maintained a 2019 Omnibus Long-Term Incentive Plan (the “2019 Plan”). Following the approval by the shareholders of the 2021 Plan, no additional awards have been or will be made under the 2019 Plan. As of June 30, 2024, all options issues under the 2019 Plan have been forfeited and no options remain outstanding.  On May 31, 2024 the Company’s Board of Directors formally terminated the 2019 Plan.

Common Stock Options

A summary of the status of the Company’s options issued under the Company’s equity incentive plans is presented below. As of June 30, 2024 there is no intrinsic value in any of the Company's outstanding options as the market price of the Company's common stock is in all cases lower than the exercise price of options:

Options outstanding and exercisable by price range as of June 30, 2024, were as follows:

Common Stock Warrants - Unregistered

A summary of the status of the Company’s unregistered warrants is presented below:

Unregistered warrants outstanding and exercisable by price range as of June 30, 2024, were as follows:

Common Stock Warrants - Registered

A summary of the status of the Company’s registered warrants is presented below:

Registered warrants outstanding and exercisable by price range as of June 30, 2024, were as follows: