Note 8 – Stockholders’ Equity (Deficit)

At December 31, 2021, the Company had an authorized capital of 750,000,000 shares of common stock, par value $0.001, and 15,000,000 shares of preferred stock par value $0.01.

On February 10, 2021, the Company effectuated a 1:17 reverse stock split of the Company’s issued and outstanding shares of common stock and all fractional shares were rounded up. All share and per share amounts in the accompanying consolidated financial statements have been adjusted retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.

Common Stock

Common Stock Issuable

As a result of the mandatory conversion of the notes payable and accrued interest in the aggregate of $38.8 million on February 16, 2021, the Company was obligated to issue a total of 11,413,322 shares of common stock to the respective noteholders.

As of December 31, 2021, the Company had issued 11,085,703 shares of common stock or approximately 97.1% or $37.7 million of the converted notes payable and accrued interest to the respective noteholders. With regards to the remaining 327,298 unissued shares of common stock or $1.1 million of the converted notes payable and accrued interest, the Company is in the process of obtaining the necessary supporting documentation from the respective noteholders which will then be provided to the Company’s stock transfer agent as a requirement for the issuance of the common stock certificate (Note 5).

For financial reporting purposes, the Company reported $1.1 million as common stock issuable in the accompanying statements of stockholders’ equity to account for the estimated balance of the converted notes payable and accrued interest that the Company has not yet issued the corresponding common stock.

Issuance of Common Stock in public offering

On February 16, 2021, the Company completed a public offering of 4,945,000 shares of common stock for net proceeds of $24.7 million, after deducting underwriting discounts, commissions and other direct offering expenses. As part of the offering, the Company also granted these investors, warrants to purchase 5,192,250 shares of common stock. The warrants are fully vested, exercisable at $5.50 per share and will expire in five years.

As a result of the completion of the public offering and the successful listing of its shares of common stock on the Nasdaq Capital Market, convertible notes with an aggregate principal amount of $33.3 million and accrued interest of $5.5 million mandatorily converted at its stated conversion rate of $3.40 per share into 11,413,322 shares of the Company’s common stock (see Note 5).

Issuance of Common Stock for services - consultants

As part of consulting agreements with certain consultants, the Company agreed to grant these consultants common stock equal to 1% and 3% of the fully diluted shares of common stock of the Company upon conversion of options, warrants and Convertible Notes in association with a national markets qualified financing as consideration for entering into the Agreement (with such stock to vest and be delivered within 30 days after the national markets qualified financing).

On February 16, 2021, the Company completed its equity offering and listed its shares of common stock on the Nasdaq Capital Market. As a result of this offering, the Company agreed to issue to these consultants 2,850,090 shares of common stock with a grant date fair value of $10.7 million, of which 1,934,817 shares of common stock vested immediately while the remaining 915,273, shares of common stock vests over two years. Pursuant to current accounting guidelines, as the grant of the common stock is subject to milestone or performance conditions, the Company measured the fair value of the common stock on the respective date of the agreement, and then such award is being recorded as compensation expense based upon the vesting term of the grant.

During the period ended December 31, 2021, pursuant to the vesting terms of the agreements, the Company recorded stock compensation expense of $9.0 million related to these consultants. In addition, the Company also issued 1,060,853 shares of common stock with a grant date fair value of $6.8 million to other consultants for service rendered that will vest over a period of 24 months. In addition, on December 31, 2021, the Company cancelled 278,058 shares granted to a consultant in February 2021. As a result, the Company recognized an aggregate of $15.3 million in stock compensation expense based upon the vesting of common stock granted to consultants.

At December 31, 2021, there are 550,479 unvested shares of common stock with a grant date fair value of $2.2 million which will be recognized as stock compensation in future periods.

Issuance of Common Stock for research and development agreement

During the year ended December 31, 2021, the Company issued 189,753 shares of common stock for a research and development agreement valued at $1.4 million. The common shares were valued on the market price at the date of grant.

Issuance of Common Stock upon exercise of warrants

During the year ended December 31, 2021, the Company issued 3,076,017 shares of common stock upon the exercise of warrants resulting in cash proceeds of $16.4 million.

During the year ended December 31, 2020, the Company issued 239,706 shares of common stock upon cashless exercise of warrants.

Issuance of Common Stock upon conversion of notes payable

During the year ended December 31, 2020, the Company issued 511,879 shares of common stock upon conversion of $1.7 million in principal and interest on convertible notes payable.

Issuance of Common Stock for legal settlements

During the year ended December 31, 2020, the Company issued 262,353 shares of common stock pursuant to Settlement Agreements with a fair value of $2.2 million. The common shares were valued on the market price at the date of grant.

As a result of all common stock issuances, the Company had 32,061,989 shares and 5,218,122 shares of common stock issued and outstanding at December 31, 2021 and December 31, 2020, respectively.

Preferred Stock

At December 31, 2021 and December 31, 2020, respectively, there were 0 and 2,353,548 shares of series J preferred stock issued and outstanding.

Shares of the Series J-1 Preferred Stock were convertible at any time, at the option of the holders, into shares of the Company’s common stock at an effective conversion price of $3.40 per share, subject to adjustment for, among other things, stock dividends, stock splits, combinations, reclassifications of our capital stock and mergers or consolidations, and subject to a beneficial ownership limitation which prohibits conversion if such conversion would result in the holder (together with its affiliates) being the beneficial owner of in excess of 9.99% of the Company’s common stock. Shares of the Series J-1 Preferred Stock had the same voting rights as shares of the Company’s common stock, with the holders of the Series J-1 Preferred Stock entitled to vote on an as-converted-to-common stock basis, subject to the beneficial ownership limitation described above, together with the holders of the Company’s common stock on all matters presented to the Company’s stockholders. The Series J-1 Preferred Stock are not entitled to any dividends (unless specifically declared by the Board), but would participate on an as-converted-to-common-stock basis in any dividends to the holders of the Company’s common stock. In the event of the Company’s dissolution, liquidation or winding up, the holders of the Series J-1 Preferred Stock would be on parity with the holders of the Company’s common stock and would participate, on a on an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.

As a result of the completion of the public offering and the successful listing of the Company’s shares of common stock on the Nasdaq Capital Market, in February 2021, all outstanding Series J shares were mandatorily converted to 692,220 shares of common stock pursuant to the terms of the conversion agreement.

At both December 31, 2021 and December 31, 2020, there were 96,230 shares of series C preferred stock, par value $0.01 per share (the “Series C Preferred Stock”) issued and outstanding.

As a result of stock splits in previous years, 96,230 shares of Series C Preferred Stock are not convertible. Shares of Series C Preferred Stock have no voting rights. Similarly, as there are no conversion rights, in the event of liquidation, the holders of the Series C Preferred Stock shall not participate in any distribution of the assets or surplus funds of the Company. The holders of Series C Preferred Stock also are not entitled to any dividends if and when declared by the Company’s board of directors (the “Board”). No dividends to holders of the Series C Preferred Stock were issued or unpaid through December 31, 2021 and 2020.

On February 16, 2021, the Board designated 115,000 shares of Series K preferred stock, par value $.01. (the “Series K Preferred Stock”).

Shares of the Series K Preferred Stock are convertible at any time, at the option of the holders, into shares of the Company’s common stock at an effective conversion rate of 100 shares of common stock for each share of Series K Preferred Stock. Shares of the Series K Preferred Stock have the same voting rights a shares of the Company’s common stock, with the holders of the Series K Preferred Stock entitled to vote on an as-converted-to-common stock basis, subject to the beneficial ownership limitation, together with the holders of the Company’s common stock on all matters presented to the Company’s stockholders. The Series K Preferred Stock are not entitled to any dividends (unless specifically declared by the Board), but will participate on an as-converted-to-common-stock basis in any dividends to the holders of the Company’s common stock. In the event of the Company’s dissolution, liquidation or winding up, the holders of the Series K Preferred Stock will be on parity with the holders of the Company’s common stock and will participate, on a on an as-converted-to-common stock basis, in any distribution to holders of the Company’s common stock.

As of December 31, 2021, there were no Series K Preferred stock issued and outstanding.

Warrants and Options

Common Stock Warrants

Stock warrant transactions for the years ended December 31, 2021 and 2020 were as follows:

 Schedule of Warrant activity

On February 16, 2021, as part of the Company’s public offering, the Company issued warrants to investors to purchase up to an aggregate of 5,192,250 shares of common stock. The warrants have an exercise price of $5.50 per share, subject to adjustment in certain circumstances and has a term of five years from the date of issuance.

During the year ended December 31, 2021, the Company issued 3,076,017 shares of common stock upon exercise of warrants which also resulted cash proceeds of $16.4 million.

On July 28, 2020, the Company issued a warrant to purchase up to an aggregate of 58,824 shares of common stock at an exercise price of $3.40 per share, subject to adjustment in certain circumstances with a fair value of $0.2 million.

The warrant expires on July 28, 2025. The warrant was issued as compensation for certain services provided to the Company.

In July 2020, pursuant to the Settlement Agreement, the Company issued pre-funded warrants to purchase up to an aggregate of 323,529 shares of common stock (the “Settlement Warrants”) at an exercise price of $3.40 per share, subject to adjustment in certain circumstances and will expire on June 19, 2025.

As of December 31, 2021, all issued and outstanding warrants are fully vested and the intrinsic value of these warrants was $0.

Common Stock Options

Stock option transactions for the year ended December 31, 2021 (there were no transactions in 2020):

 Schedule of Options Activity

On December 31, 2021, the Company granted two employees a total of 302,500 stock options. The stock options are exercisable at $3.05 per share and will expire in 10 years. A portion of the options vested immediately, with the remaining portion vesting over a two year period from the date of grant. The fair value of the options amounted to $808,000 or an average of $2.67 per share and were calculated using a Black-Scholes option pricing model. Assumptions used in the model were: expected term – 5.5 years; expected volatility – 129.0%; risk free interest rate – 1.26% and dividend yield of 0%. Pursuant to the vesting term of the stock options, the Company recorded stock compensation expense of $250,700 for the year ended December 31, 2021.

There was no intrinsic value of the outstanding options as of December 31, 2021, as the exercise price of these options equals the market price.