STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2022

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 17. STOCKHOLDERS’ EQUITY

2021 Preferred stock offering

On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our Common Stock. The total number of Units sold was 1,180. Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants. The purchase price of each Unit was $1,000, for an aggregate amount sold of $1,180,000. Each share of Series A Preferred is convertible into 1,000 shares of Common Stock upon the consummation of a capital raise of not less than $5,000,000. The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021. The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value per share, and sets forth the rights, restrictions, preferences, and privileges of the Series A Preferred, summarized as follows:

● Authorized Number of Shares – 5,000

● Voting Rights – None

● Dividends – 6% per annum, ‘paid in kind’ in shares of Series A Preferred

● Conversion – Each share of Series A Preferred is mandatorily convertible into 1,000 shares of Common Stock upon a minimum capital raise of $5,000,000; sale, merger, or business combination of the Company; or the Company listing on an exchange

● Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption

The Preferred Warrants have a five-year term and an exercise price per Preferred Warrant share of $1.05. The warrants contain an anti-dilution provision pursuant to which upon we do a future capital raise at less than $1.00 per shares, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis.

The proceeds received in the sale of the Series A Preferred totaled $1,180,000, for the issuance of 1,180 Series A Preferred, plus 354,000 warrants. The warrants were valued using a Black Scholes model, at $117,131 and per the relative fair value allocation, $1,073,446 was allocated to the Series A proceeds.

In addition to the Preferred Warrants, the Company has outstanding warrants related to prior equity offerings. The table below summarizes the warrants issued in conjunction with our equity offerings:

				Weighted-
		Weighted-		average
		average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2020	7,602,814	$	0.54	4.4	$	—
Granted	354,000		1.05
Outstanding as of December 31, 2021	7,956,814		0.56	4.4		—
Granted	—		—
Outstanding and exercisable as of December 31, 2022	7,956,814	$	0.56	4.4	$	—

Warrants with Debt

The Company has also issued warrants in conjunction with debt issuances. The following summarizes warrants issued in conjunction with our debt issuances:

				Weighted-
		Weighted-		average
		average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2020	7,421,011	$	0.46	2.0	$	478,925
Granted	1,868,518		0.56
Expired	(1,204,000)		0.65
Outstanding as of December 31, 2021	8,085,529		0.58	2.8	$	—
Granted	5,785,721		0.70
Expired	(1,756,000)		0.40
Outstanding and exercisable as of December 31, 2022	12,115,250	$	0.66	3.5	$	—

Stock-based compensation

Stock-based Awards

As of December 31, 2022, the Company has two active plans, the 2020 Omnibus Incentive Plan approved by the Board in November 2020 (“2020 Plan”) and the 2014 Equity Incentive Plan approved by the Board in October 2014 (“2014

Plan” and collectively with the 2020 Plan the “Stock Incentive Plans”) that allow the Board of Directors to grant stock-based awards to eligible employees, non-employee directors, and consultants of the Company and its subsidiaries. Under the Stock Incentive Plans, the Board may grant non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of our common stock to be authorized for issuance under the Stock Incentive Plans is 25 million shares. As of December 31, 2022, stock-based awards for approximately 17.5 million shares are available to be issued under the Stock Incentive Plans.

Stock Options

The following summarizes stock option activity for the years ended December 31, 2022 and 2021:

				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2020	7,266,420	$	1.03	5.5	$	167,000
Granted	1,158,000		0.82
Exercised	(394,670)		0.52
Forfeited or expired	(3,126,205)		1.04
Outstanding as of December 31, 2021	4,903,545	$	1.11	5.3	$	22,000
Granted	250,000		0.34
Forfeited or expired	(216,720)		0.87
Outstanding as of December 31, 2022	4,936,825	$	1.08	4.4	$	22,000
Exercisable as of December 31, 2022	4,564,445	$	1.15	4.4	$	4,000

The options granted in 2022 and 2021 expire five years from the date of grant and vest over a period of one year. The grant date fair value of the awards granted in 2022 and 2021, totaled $56,348 and $628,496, respectively.

The following summarizes the Black-Scholes assumptions used to value the Employee Awards granted:

	Year ended December 31,
	2022			2021
Exercise price	$	0.22 - 0.95		$	0.31 - 0.67
Stock price on date of grant	$	0.22 - 0.95		$	0.27 - 0.67
Volatility		100 - 111	%		111 - 114	%
Risk-free interest rate		0.29 - 0.97	%		0.16 - 1.53	%
Expected life (years)		3.0			3.0
Dividend yield		—			—

As of December 31, 2022, there was approximately $13,172 of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of four months.

Restricted Stock Awards

On April 1, 2022 we entered into a Restricted Stock Unit Agreement with four participants. The Restricted Stock Unit’s (“RSU”) were granted pursuant to our 2020 Omnibus Incentive Plan. Four separate executives were each granted 300,000 RSU’s, for a total grant of 1,200,000 RSU’s. The 300,000 RSU’s are divided into three equal tranches of 100,000 RSU’s. Each tranche of RSU will vest immediately if and upon the market price reaching a certain minimum market price of our Common Stock as reported on the OTCQB market. Each tranche will

vest as the market price reaches $1.00, $2.00 and $3.00. Upon the RSU’s vesting, the participant will be promptly issued shares of our Common Stock. If there is a change in control, all unvested RSU’s granted under this agreement will become fully vested and the vested RSU’s will be paid out or settled. The grant date fair value of these instruments is $535,976 and was calculated using the Monte Carlo model. The fair value of the RSU’s is recognized over the requisite service period. As these RSU’s do not have a service period, we used the requisite service period derived from the valuation of 10 years. As of December 31, 2022, none of the RSU’s have vested.

The Company recognized $188,330 and $307,963 of expense related to stock-based awards during the years ended December 31, 2022 and December 31, 2021, respectively.