Note 7 – Stockholders’ Equity

The Company is authorized to issue 250,000,000 shares of common stock , par value of $0.001 as of December 31, 2022.

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.

On October 10, 2022, at a special meeting of the stockholders of the Company, the stockholders ratified and approved the inclusion of discretionary votes by brokers and other nominees holding shares for beneficial owners in the tabulation of votes on the proposal presented at the Company’s annual meeting of stockholders to reduce the authorized number of shares of the Company’s common stock from 750,000,000 shares to 250,000,000 shares.

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, for a total of $38.8 million, were mandatorily converted at its stated conversion rate of $3.40 per share into 11,413,322 shares of the Company’s common stock. The Company issued 11,086,024 shares of common stock to these note holders while the remaining 327,298 common shares, valued at $1.1 million, were issuable at December 31, 2021. For financial reporting purposes, as of December 31, 2021, the Company reported the $1.1 million as common stock issuable to account for the estimated balance of the converted notes payable and accrued interest that the Company had not yet issued the corresponding common stock.

During the year ended December 31, 2022, the Company issued the remaining 327,298 common shares issuable at December 31, 2021 valued at $1.1 million. In addition, the Company also issued an additional 10,404 shares of commons stock with a fair value of $35,000 as settlement with a noteholder.

 Cancellation of common stock previously issued for services

The Company cancelled 290,999 previously issued shares of common stock during the year ended December 31, 2022. 

Issuance of common stock as equity compensation to officers, employees and board of directors

On February 16, 2021, the Company completed its equity offering and listed its shares of common stock on the Nasdaq Capital Market. As such, 4,379,407 shares of its common stock were granted to these officers, employees and directors, which had a fair value of $18.6 million at the date of Grant. Since the grant of the common stock is subject to milestone or performance conditions, such awards will be recorded as compensation expense as the milestone or performance condition are met and in accordance with its vesting terms.

During the year ended December 31, 2021, the Company issued 4,040,524 shares of common stock and recognized stock compensation expense of $16.9 million to account the fair value of common stock that vested under this award. Also in 2021, the Company cancelled 278,058 shares of common stock granted to a Board member in February 2021 and issued 12,500 shares of common stock with a fair value of $38,000 to an employee for services rendered.

During the year ended December 31, 2022, the Company issued 312,815 shares of common stock and recognized stock compensation expense of $1.5 million to account the fair value of common stock that vested.  Also in 2022, the Company issued 396,708 shares of common stock with a fair value of $994,000 to certain officers of the Company for services rendered.

As of December 31, 2022, there were 44,818 unvested shares of common stock issued to officers, employees and directors with a fair value of $206,035 that will be recognized as stock compensation expense in future periods pursuant to its vesting term.

Equity compensation to consultants

On February 16, 2021, the Company completed its equity offering and listed its shares of common stock on the Nasdaq Capital Market. As such, 2,850,090 shares of its common stock were granted to consultants, which had a fair value of $10.7 million at the date of Grant. Since the grant of the common stock is subject to milestone or performance conditions, such awards will be recorded as compensation expense as the milestone or performance condition are met and in accordance with its vesting terms.

During the year ended December 31, 2021, the Company issued 2,432,895 shares of common stock and recognized stock compensation expense of $9.2 million to account the fair value of common stock that vested under this award. Also in 2021, the Company issued 649,511 shares of common stock with a fair value of $6.1 million to consultants for services rendered.

During the year ended December 31, 2022, the Company issued 370,744 shares of common stock and recognized stock compensation expense of $1.3 million to account the fair value of common stock that vested under this award. Also in 2022, the Company issued 156,113 shares of fully vested common stock with a fair value of $791,000 to consultants for services rendered.

As of December 31, 2022, there were 46,343 unvested shares of common stock issued to consultants with a fair value of $162,664 that will be recognized as stock compensation expense in future periods pursuant to its vesting term.

Cancellation of common stock upon settlement with a former Officer

On April 29, 2022, the Company entered into a settlement agreement with its former Chief Executive Officer (“Officer”) and received 1,845,000 shares of its previously issued common stock in full and final settlement of all its claims against the Officer. The common stock was subsequently cancelled and returned to treasury. In addition, the Company incurred legal and professional expenses of $224,243. The legal and professional fees incurred were accounted as costs of the acquisition of the common stock and recorded as a reduction to additional paid in capital. Both the Company and the Officer released each other from claims under the settlement agreement.

Preferred Stock

At December 31, 2022 and 2021, 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, the 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. No dividends to holders of the Series C Preferred Stock were issued or unpaid through December 31, 2022 and 2021.

The Company is authorized to issue its Series J-1 Preferred Stock with a par value of $0.01 per share. Shares of the Series J 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 Preferred Stock had the same voting rights as shares of the Company’s common stock, with the holders of the Series J 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 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 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 of December 31, 2020, total Series J-1 Preferred stock issued and outstanding totaled 2,353,548 shares.

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 Preferred Stock totaling 2,353,548 shares were mandatorily converted to 692,220 shares of common stock pursuant to the terms of the conversion agreement.

As of December 31, 2022 and 2021, there were no Series J-1 Preferred Stock issued and outstanding.

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, 2022 and 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, 2022 and 2021, 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 3,074,017 shares of common stock upon exercise of 3,074,017 warrants, which resulted cash proceeds of $16.4 million.

As of December 31, 2022, all issued and outstanding warrants are fully vested. There was no intrinsic value of the outstanding warrants as of December 31, 2022, as the exercise price of these warrants was equal to or greater than the market price.

Common Stock Options

Stock option transactions for the years ended December 31, 2022 and 2021 were as follows:

Schedule of Options Activity 

Year Ended December 31, 2022

On July 15, 2022, the Company granted certain consultants, employees, officers and directors stock options to purchase an aggregate of 1,532,952 shares of common stock. The stock options are exercisable at $2.48 per share and will expire in 10 years. A portion of the options vested immediately with the remaining portion vesting over a period of 5 months up to 36 months. The fair value of the options amounted to $3.4 million or an average of $2.22 per share and were calculated using the Black Scholes Option pricing model. Assumptions used in the model were: expected term – 6.27 years; expected volatility – 125.53%; risk free interest rate – 3.03% and dividend yield of 0%. The Company recognized the corresponding stock compensation expense of these options based upon the vesting term.

The Company recorded forfeitures of 205,000 options to purchase common stock during 2022 due to the resignation of employees. The forfeitures were related to shares that had not yet been vested.

During the year ended December 31, 2022, the Company recorded total stock compensation of $3,032,000 to account the fair value of stock options that vested in fiscal 2022.

At December 31, 2022, there were 275,101 unvested options with a grant date fair value of $645,172 which will be recognized as stock compensation expense in future periods based upon the remaining vesting term of the applicable grants. There was no intrinsic value of the outstanding options at December 31, 2022, as the exercise price of these options is greater than or equal to the market price.

Year Ended December 31, 2021

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 $808,280 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%.

During the year ended December 31, 2021, the Company recorded stock compensation of $251,000 to account the fair value of stock options that vested in fiscal 2021.