NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT)

June 2023 Registered Direct Offering and 2023 Private Placement Warrants

On July 5, 2023, the Company, closed on a Securities Purchase Agreement dated June 30, 2023 (the “Purchase Agreement”) with a single institutional investor (the “Investor”), pursuant to which the Investor agreed to purchase from the Company, in a registered direct offering (the “Registered Offering”), (i) an aggregate of 171,666 shares of the Company’s Class A Common Stock, par value $0.001 per share at a price of $16.02 per share, (ii) an aggregate of 78,021 pre-funded warrants to purchase 78,021 shares of Common Stock, at an offering price of $16.0194 per pre-funded warrant at an exercise price of $0.0006 per share, with a term of exercise of five years (collectively, the “Registered Offering Securities”). The gross proceeds to the Company from the Registered Offering and concurrent private placement described below were approximately $4,000,000 (before deducting the placement agent’s fees and other offering expenses paid by the Company approximately $365,000).

As additional consideration for the purchase of the Private Placement Securities, we agreed to issue to the Investors Series A Warrants to purchase 249,688 shares of common stock at an exercise price of $16.80 per share, and Series B Warrants to purchase 249,688 shares of common stock at an exercise price of $16.80 per share (collectively, the “Private Placement Warrants”). The exercise price of the Private Placement Warrants is $16.80 per share, however, is subject to adjustment 100% of the highest VWAP during the period beginning on the trading day immediately preceding a public announcement of an applicable fundamental transaction and ending within 30 trading days following the fundamental transaction.  In such event, the Investor shall have the right to receive, for each Private Placement Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, at the option of the Investor, the number of Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of Shares for which this Private Placement Warrant is exercisable.  Further, if the Company is given any choice as to the securities, cash or property to be received in a fundamental transaction, then the Investor shall be given the same choice as to the alternate consideration it receives upon any exercise of these Private Placement Warrants following such fundamental transaction.

All the pre-funded warrants associated with the Registered Offering and the Series A and Series B warrants have been classified and accounted for in equity. The net proceeds of the offering, including the fair value assigned to the Private Placement Warrants were recorded as a component of stockholders’ equity within additional paid-in-capital.

Recapitalization - Reverse Stock Split

On October 26, 2023, the Company filed a certificate of amendment to its articles of incorporation with the Secretary of State of Nevada (the “Certificate of Amendment”), to (i) effectuate a reverse stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock and treasury shares on a 1-for-6 basis and (ii) decrease the number of total authorized shares of common stock of the Company from 150,000,000 to 25,000,000 shares. 

As of the Effective Time, every 6 shares of issued and outstanding common stock were converted into one share of common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, a holder of record of old common stock as of immediately prior to the Effective Time who would otherwise have been entitled to a fraction of a share was entitled to receive cash in lieu thereof.

The Company’s transfer agent, Issuer Direct Corporation, acted as the exchange agent for the Reverse Stock Split. The Reverse Stock Split did not alter the par value of the Company’s common stock or modify any voting rights or other terms of the common Stock. In addition, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable under all of the Company’s outstanding stock options and warrants to purchase shares of common Stock, and the number of shares authorized and reserved for issuance pursuant to the Company’s equity incentive plan will be reduced proportionately.

All issued and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock. A proportionate adjustment was also made to the number of shares reserved for issuance pursuant to the Company’s equity incentive compensation plans to reflect the Reverse Stock Split.

Stock Sales and Issuances

During the twelve months ended December 31, 2024, the Company sold and issued a total of 793,489 shares of common stock for proceeds $5,602,269. Included in these sales of stock were the sale of 598,054 shares of common stock for $4,283,387 to unrelated private investors, and 195,435 shares of common stock to related parties for $1,318,882 including $1,240,781 in cash and $78,101  in related party accounts payable owed to those individuals.

During the year ended December 2023, the Company sold and issued 563,016 shares of common stock for proceeds of $640,000 to various investors in private placements.  Included in those amounts were issuances of 437,692 shares of common stock for proceeds of $485,000 to two related parties.

Stock Warrants Issued

In the year ended December 31, 2024, the Company issued warrants to purchase 30,924 shares of common stock to investors under a board approved private fund raising program.  Included in the total were warrants for 6,185 shares issued to related parties.

In the year months ended December 31, 2023, the Company issued warrants to purchase 642,397 shares of common stock.  Included in the total were warrants for 65,000 shares issued to a related party, pre-funded warrants to purchase 78,021 shares of common stock, and warrants to purchase 499,376 shares of common stock to a single investor in a private transaction.

Stock Warrants Exercised

In the year ended December 31, 2024, no stock warrants were exercised by any investor holding warrants.

During the year ended December 31, 2023, the Prefunded Warrants in connection with the Securities Purchase Agreement dated June 30, 2023, were exercised on a cash basis.  The Company received $47 in exchange for the issuance of 78,021 shares of common stock.  See NOTE 9 - STOCKHOLDERS’ EQUITY (DEFICIT) - June 2023 Registered Direct Offering and 2023 Private Placement Warrants.

Equity Based Compensation

The Company compensates executives, employees, directors, and some service providers from time-to-time with equity as a component of compensation for employment and other services.  These equity awards are issued under established plans.

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 December 31, 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 is initially set at 1,000,000 shares; this number is automatically increased through an evergreen provision 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. 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 December 31, 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. 

Equity Based Compensation Expense

For the year ended December 31, 2024, the Company recognized a total stock based compensation expense of $9,473,513 for equity compensation to members of the Board of Directors and certain employees for restricted stock awards and option grants. $2,222,806 of the total expense for the year was related to R&D and the remaining $7,250,707 was for general and administrative expenses (G&A). During the year ended December 31, 2023, the Company recorded compensation expense for new equity grants in the present period plus equity awards from prior periods of $867,359, of which $232,920 of the total expense for the year was related to R&D and the remaining $634,439 was for general and administrative expenses (G&A).

Board of Directors Equity Based Fees

On June 12, 2023, our Board of Directors awarded options pursuant to the Non-Employee Director Compensation Policy. The Board granted to each of the three non-employee directors $50,000 in value of common stock options. The Company used the Black Scholes option pricing model to determine the number of shares that would derive a value of $50,000 for each non-employee director. The Black Scholes pricing model used the following assumptions: term of 5.31 years; volatility 112.25%; annual rate of dividends 0%; discount rate 3.88%. The model yielded an award grant of 10,878 total options, 3,626 for each of the three non-employee directors.  The Company recorded directors’ fees related to equity compensation of $337,682 for the year ended December 31, 2023, representing the expense associated with the common stock options awarded in 2023 and years prior.  

On June 11, 2024, the Company restructured the Board of Directors compensation to award Restricted Stock Awards to the non-employee members of the Board and curtailed the practice of awarding common stock options to the non-employee Board members.

During the year ended December 31, 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.  The Company recorded directors’ fees related to equity compensation of $3,258,311 for the year ended December 31, 2024, representing the expense associated with the Restricted Stock Awards and vesting of common stock option awards from prior years.  

Board Annual Service

The equity compensation for the year ended December 31, 2024, for normal board annual service equity awards per the Company’s amended Board Compensation Policy of $187,673 included the value of 18,819 Restricted Stock Awards (RSA) issued in 2024 and compensation expense related to vesting of options issued in years prior.  On, June 11, 2024 pursuant to the Amended Non-Employee Director Compensation Policy for annual service on the Board of Directors whereby each non-employee director received $50,000 in value of RSA calculated from the closing price of the Company’s common stock on that day. The RSAs, issued at $7.97 per share, 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.

The remaining 426,671 RSA and $3,070,638 of directors’ fees related to equity compensation is due to the following one-time compensation awards and events.

Director Stock Option Replacement Program

From 2021 to 2023, 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 $671,998 of compensation expense related to this award in the year ended December 31, 2024.

Stock Award Grant

On May 31, 2024, the Board granted common stock RSAs with a value of $299,996 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 RSA shares vested immediately upon issuance.  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 accrued but 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 at the time $172,670 in fees.  Upon Board approval, 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 were issued under the Director Equity Plan and are subject to provisions thereof.  The RSAs issued under this program vested 50% immediately on the date of grant, and the remaining 50% vested 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 $2,077,523 of expense in the year ended December 31, 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.

Undermarket Equity Purchases

Between July 24, 2024 and October 16, 2024 the Company sold common stock to non-employee board members at prices that were less than the fair value on the day of the transactions. The difference between fair value and the purchase price was $21,121 and was recognized as compensation expense in the consolidated statements of operations.

Employee Stock Based Compensation

Common Stock Options

During the year ended December 31, 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 $6,215,202 for the year ended December 31, 2024. For the year ended December 31, 2023, the Company incurred compensation expenses for equity awards to executives and employees of $867,359.

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 $338,819 for the award grant. The Black Scholes pricing model used the following assumptions: assumed term of 5.1 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 executives and employees under both the 2019 Plan and the 2021 Plan. Replacement shares were granted under the existing 2021 Plan. The total expense for options awards made to various employees for the year ended December 31, 2024 was $5,849,520.  The Company used the Black Scholes option pricing model to determine the compensation expense for these award grants issued in the year ended December 31, 2024. The Company valued the new awards using the Black Scholes pricing model with the following assumptions: option agreement expected term of 5.1 years; volatility 122.46%; annual rate of dividends 0%; discount rate 4.29%. 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 fair value of options was estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:

Year Ended December 31, 

Undermarket Equity Purchases

On October 15, 2024 the Company sold common stock to the CEO of the Company at a price that was less than the fair value on the day of the transaction. The difference between fair value and the purchase price was $26,863 and was recognized as employee compensation expense in the consolidated statements of operations.

Common Stock Options

A summary of the status of the Company’s options issued under the Company’s equity incentive plans is presented below.  Based on the closing market price of $21.50 per share on December 31, 2024 the total intrinsic value of all the Company’s outstanding options was $14.0 million.

Options outstanding and exercisable by price range as of December 31, 2024 were as follows:

As of December 31, 2024, there was $133,257 of remaining unrecognized compensation expense related to common stock options, which is expected to be recognized over a weighted average period of 0.3 years.

Common Stock Restricted Stock Awards (RSA)

The total RSA expense recorded in 2024 and 2023 are as follows:

The 2024 RSA activity is as follows:

As of December 31, 2024, there was $31,135 of remaining unrecognized compensation expense related to RSAs, which is expected to be recognized over a weighted average period of 0.2 years.

The total fair value of RSAs vested during the years ended December 31, 2024 was $2,507,934. The fair value was determined based on the closing price of shares of our common stock on the dates the awards vested.

Common Stock Warrants - Unregistered 

A summary of the status of the Company’s unregistered warrants is presented below.  Based on the closing market price of $21.50 per share on December 31, 2024 the total intrinsic value of all the Company’s unregistered warrants was $2.9 million.

Unregistered warrants outstanding and exercisable by price range as of December 31, 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 December 31, 2024, were as follows: