NOTE 5 - STOCKHOLDERS’ EQUITY (DEFICIT)

Equity Sales

During the three months ended September 30, 2024, the Company sold common stock in 9 private unregistered transactions to investors resulting in the issuance of 171,364 shares of common stock and total proceeds of $1,414,474  including $1,336,373 in cash and $78,101 in accounts payable. Included in the totals are 45,406 shares of common stock sold to related parties for total proceeds of $378,101 including $300,000 in cash and $78,101 in related party accounts payable. In the three months ended September 30, 2023, the Company, closed on a securities purchase agreement with a single institutional investor, pursuant to which the investor agreed to purchase from the Company, in a registered direct offering 171,666 shares of the Company's common stock for proceeds of $2,750,089.

During the nine months ended September 30, 2024, the Company sold common stock in 38 private unregistered transactions to investors resulting in the issuance of 662,550 shares of common stock and total proceeds of $3,177,798 including $3,099,697 in cash and $78,101 in accounts payable.  Included in the totals are 185,959 shares of common stock sold to related parties for total proceeds of $1,168,882 including $1,090,781 in cash and $78,101 in related party accounts payable. In the nine months ended September 30, 2023, the Company, closed on a securities purchase agreement with a single institutional investor, pursuant to which the investor agreed to purchase from the Company, in a registered direct offering 171,666 shares of the Company's common stock for proceeds of $2,750,089.

Warrants

In the three months ended September 30, 2024 the Company issued warrants to purchase 17,134 shares of common stock to investors under a board approved private fund raising program.  Included in the total were warrants for 4,540 shares issued to related parties.

In the three months ended September 30, 2023, the Company issued pre-funded warrants to purchase 78,021 shares of common stock, and issued warrants to purchase 499,376 shares of common stock to a single investor in a private transaction.

In the nine months ended September 30, 2024 the Company issued warrants to purchase 17,832 shares of common stock to investors under a board approved private fund raising program.  Included in the total were warrants for 5,238 shares issued to related parties.

In the nine months ended September 30, 2023 the Company issued pre-funded warrants to purchase 78,021 shares of common stock, issued warrants to purchase 499,376 shares of common stock to a single investor in a private transaction, and issued warrants to purchase 65,000 shares of common stock as part of a loan agreement with the Company’s CEO.

Equity Compensation

Stock Based Compensation

For the quarter ended September 30, 2024, the Company recognized a total stock based compensation expense of $1,066,668 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.  $106,236 of the total expense for the quarter was related to R&D and the remaining $960,432 was for general and administrative expenses (G&A). During the three months ended September 30, 2023, no options were granted to each of the non-employee directors of the Company. The Company recorded compensation expense for prior issued grants during the three months ended September 30, 2023 of $240,750.

For the nine months ended September 30, 2024, the Company expensed $8,728,427 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.  $2,166,464 of the total expense for the quarter was related to R&D and the remaining $6,561,963 was for general and administrative expenses (G&A). During the nine months ended September 30, 2023, 10,878 options were granted to each of the non-employee directors of the Company. As a result of these and previous grants, the Company recorded compensation expense of $710,661 for that period.

Restricted Stock Awards

During the three months ended September 30, 2024, the Company issued no new Restricted Stock Awards (RSAs).  For three months ended September 30, 2024, the Company recognized $554,321 in directors’ compensation expense for vesting of previously awarded RSAs.

During the nine months ended September 30, 2024 the Board of Directors awarded 445,490 RSAs to the non-employee directors of the Company under the Equity Incentive Plan for Non-Employee Directors.  Of this total 18,819 RSAs 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 RSAs calculated from the closing price of the Company’s common stock on that day. The RSAs 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 the three months ended September 30, 2024, the Company recognized $95,977 in directors compensation expense for these awards.  For the nine months ended September 30, 2024, the Company recognized $112,165 in directors compensation expense for these awards. The remaining 426,671 RSAs 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 a newly adopted 2024 Equity Incentive Plan for Non-Employee Directors (the "Director Equity Plan") to replace all 62,451 outstanding options that were previously granted to non-employee directors under the 2021 Plan. The RSAs vested immediately on the date of the grant. The Company recognized $697,501 of expense in the nine months ended September 30, 2024.

Stock Award Grant

On May 31, 2024, the Board granted common stock RSAs with an approximate 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 Company recognized an expense of $299,996 for this RSA grant. 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 RSAs 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 $458,344 of expense in the three months ended September 30, 2024, for the portion of these awards vesting on January 1, 2025.  The Company recognized $1,619,184 of expense for the nine months ended September 30, 2024 for the vested and unvested awards.

No RSAs were issued by the Company in the three months and nine months ended September 30, 2023.

Common Stock Options

During the three months ended September 30, 2024, the Company issued no new option awards.  The Company recognized compensation expense for options that were previously granted to executives and employees of $512,347 for the three month period ended September 30, 2024.

During the nine months ended September 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 $5,999,589 for the nine month period ended September 30, 2024.

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 $512,347 for these award grants for the three months ending September 30, 2024. For the nine months ended September 30, 2024, the Company recorded compensation expense for these awards of $5,660,774. 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 September 30, 2023, 10,878 options were granted to each of the non-employee directors of the Company. The Company recorded compensation expense for issued grants during the three months ended September 30, 2023, and for previous grants in the amount of $240,750 for this period. During the nine months ended September 30, 2023, 10,878 stock options were granted to each of the non-employee directors of the Company. As a result of these and previous grants, the Company recorded compensation expense of $710,661 in that nine 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 September 30, 2024, 429,510 shares remain available to be issued under the Director Equity Plan.

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 was 166,666 shares (following a reverse stock split); 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 was increased to 1,000,000 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 September 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 September 30, 2024, all options issued 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 September 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 September 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 September 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 September 30, 2024, were as follows: