Stockholder Equity

6 Months Ended

Jun. 30, 2024

Stockholder Equity

Stockholder' Equity

Note 7 – Stockholders’ Equity

The Company is authorized to issue 50,000,000 shares of preferred stock and 200,000,000 shares of common stock both with a par value of $0.0001.

Preferred Stock

On October 30, 2020, the Company designated 1,000,000 shares of preferred stock as Series D Convertible Preferred Stock with a par value of $0.0001.

As of June 30, 2024, there were no shares of preferred stock issued and outstanding. 

Common Stock

The holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the directors’ election. There is no right to cumulative voting in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends, subject to the prior rights of holders of preferred stock and any contractual restrictions the Company has against the payment of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no pre-emptive rights and have no right to convert their common stock into any other securities. At June 30, 2024, there were 132,932,335 shares of common stock issued and outstanding.

Common Stock Sales

In December 2022, the Company entered into an open market sale agreement with a sales agent pursuant to which the Company may offer and sell shares of its common stock from time to time through the sales agent. Sales of common stock, if any, will be made at market prices by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company has no obligation to sell any shares of common stock under the open market sale agreement and may at any time suspend offers under the open sale market agreement, in whole or in part, or terminate the open market sale agreement.

During the three and six months ended June 30, 2024, a total of 18,474 shares of common stock were sold pursuant to the open market sale agreement resulting in gross proceeds of approximately $24,000, and issuance costs consisting of approximately $600 in commission fees and approximately $49,100 of accounting and legal fees for net equity issuance costs of approximately $25,700. As of the date of this filing, the “at-the-market” offering is inactive.

During the six months ended June 30, 2023, a total of 3,766,422 shares of common stock were sold pursuant to the open market sale agreement, resulting in net proceeds of $13,441,000 in proceeds, net of $230,000 of commission fees and $110,000 of accounting and legal fees.

At June 30, 2024, a total of 3,784,896 shares of common stock have been sold pursuant to the open market sale agreement and approximately $86,193,000 shares of common stock remain available to be sold in the Company’s at-the-market offerings, subject to various limitations. 

Common Stock for Services

During the three months ended March 31, 2024 and June 30, 2024, we issued 3,339 and 3,415, respectively, fully vested shares of common stock to a service provider each with a fair value of $4,500 each based on the market price of our common stock on date of grant.

During the three and six months ended June 30, 2024, we issued an aggregate of 240,000 fully vested shares of restricted common stock to our board of directors with a fair value of $333,600 based on the market price of our common stock on the date of grant.

During the three and six months ended June 30, 2024, aggregate expense associated with shares of common stock issued for services was $338,100 and $342,600, respectively, which has been included in general and administrative expenses on the condensed unaudited consolidated statements of operations.

During the six months ended June 30, 2023, we issued 20,000 fully vested shares of restricted common stock to two former employees with a fair value of $71,200 based on the market price of our common stock on date of grant.

Stock-Based Compensation

During the three months ended June 30, 2024 and 2023, the Company recorded stock-based compensation of $275,384 and $300,012, respectively, for restricted stock units and options granted to employees and various consultants of the Company. 

During the three months ended March 31, 2024 and 2023, the Company recorded stock-based compensation of $183,200 and $214,924 respectively, for restricted stock units and options granted to employees and various consultants of the Company. 

For the six months ended June 30, 2024, $363,766 of the stock-based compensation was charged as general and administrative expenses and $90,318 as research and development expenses in the accompanying unaudited condensed consolidated statements of operations. For the six months ended June 30, 2023, $458,540 was charged as general and administrative expenses and $56,394 as research and development expenses in the accompanying unaudited condensed consolidated statements of operations.

Stock Options

Stock options issued under the Company’s 2021 Equity Incentive Plan, as amended (the “2021 Plan”), as amended, which initially reserved and authorized a total of 10,000,000 shares of our common stock for issuance under the 2021 Plan.  At the 2024 Annual Meeting of Stockholders held on June 13, 2024, the Company’s stockholders approved an amendment to the Company’s 2021 Plan to increase the number of shares of common stock authorized and issuable pursuant to the 2021 Plan by 14,000,000 shares for a total of 24,000,000 shares.

Stock option activity for the six months ended June 30, 2024 is summarized as follows:

	Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)
Options outstanding at December 31, 2023		10,828,174	*	$	0.83	$	6,374,433		4.66
Granted		50,000			1.40		-		-
Exercised		-			-		-		-
Expired/forfeit		(137,924	)		2.65		-		-
Options outstanding at March 31, 2024		10,740,250	*		0.81		4,826,248		4.35
Granted		6,287,000			1.26		-		-
Exercised		-			-		-		-
Expired/forfeit		(1,027,880	)		1.86		-		-
Options outstanding at June 30, 2024		15,999,370	*		0.92	$	4,499,098		9.07
Options exercisable at June 30, 2024		8,364,023		$	0.47	$	6,117,342		3.30

*Includes 6,700,000 options granted in connection with the Merger (see Note 1) and were not granted under the 2021 Plan.

During the three months ended June 30, 2024, the option grants primarily consisted of 5,250,000 options granted to the Company's Chief Executive Officer (“CEO”, see Note 9), 231,000 options granted to the Company's Chief Operating Officer (“COO”, see Note 9), 481,000 options granted to a key employee pursuant to an employment agreements and 50,000 granted to two new employees. Further, 275,000 options were granted pursuant to a legal settlement (see Note 9). The average grant-date fair value of the granted options was $0.47.

Of the total options granted during the three months ended June 30, 2024, 3,106,000 of the options included performance conditions in which 50% of the stock options vest upon the achievement of Operating Profit, as defined in the employment agreements. The remaining 50% vest based on the achievement of a revenue target of $100 million by the end of fiscal year 2029. The stock options with the revenue target begin vesting once the Company achieves $15 million in revenue for a fiscal year. Vesting will occur on January 31 of each year through 2028. The number of options that vest is based on the proportionate percentage of each fiscal year’s revenue to the $100 million target. For example, if the Company's annual revenue for fiscal year 2026 is $20 million, 20% of the options with the revenue performance condition will vest on January 31, 2027.

The aggregate grant-date fair value of these performance-based options is $1,459,820. During the six months ended June 30, 2024, the Company did not recognize any stock-based compensation associated with these options as the probability of the performance conditions being met was deemed remote.

Total unrecognized compensation associated with unvested time-based options is approximately $2,502,558 which will be recognized based on the options associated vesting schedules over a period of approximately 3.30 years. During the six months ended June 30, 2024, $385,244 of our stock-based compensation was associated with the time-based stock options.

The fair value of these options granted were estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions. This does not include options related to a settlement which were issued during the year and will be discussed in Footnote 9 - Commitments:

	June 30, 2024			June 30, 2023
Dividend yield		0.00	%		0.00	%
Expected life	6.25 Years			5.45 – 6.53 Years
Expected volatility	26.21.-26.38%			30.00-35.88%
Risk-free interest rate	4.09-4.65%			3.57-3.97%

Restricted Stock Units

During the three and six months ended June 30, 2024, the Company granted an aggregate of 2,962,000 unvested restricted stock units under the 2021 Plan as follows: 2,250,000 our Chief Executive Officer ( Note 9), 231,000  to our Chief Operating Officer (Note 9), and 481,000 to a key employee  pursuant to employment agreements. These unvested restricted stock units consist of 1,356,000 units with time-based vesting provisions and 1,606,000 units with performance-based vesting provisions. The performance-based units vest as follows: 50% vest upon the achievement of Operating Profit, as defined in the employment agreements, and 50% upon the achievement of a revenue target of $100 million by the end of fiscal year 2028. The restricted stock units with the revenue target begin vesting once the Company achieves $15 million in revenue for a fiscal year. Vesting will occur on January 31 of each year through January 31, 2029. The number of restricted stock units that vest is based on the proportionate percentage of each fiscal year’s revenue to the $100 million target. For example, if our annual revenue for fiscal year 2026 is $20 million, 20% of the restricted stock units with the revenue performance condition will vest on January 31, 2027.

The grant-date fair value of the restricted stock units was determined using the market price of our common stock on the date of grant which ranged from $1.25 to $1.50. At June 30, 2024, we have $2,025,300 of unrecognized stock-based compensation associated with the restricted stock units with a performance condition. At June 30, 2024, the Company had $1,459,820 of unrecognized stock-based compensation associated with the time vesting restricted stock units which will be recognized over a period of approximately 3.75 years.  During the three months ended June 30, 2024, $73,340 of our stock-based compensation was associated with the time-based restricted stock units.

A summary of our outstanding nonvested restricted stock units is as follows:

			Weighted-Average
			Grant Date
	Amount		Fair Value
Nonvested, beginning of the period		-	$	-
Granted		2,962,000		1.26
Vested		-		-
Forfeited		-		-
Nonvested,end of the period		2,962,000	$	1.26

Stock Warrants

At June 30, 2024, there were 1,235,000 warrants outstanding which relate to a private placement offering consummated in December 2022, where investors were offered a warrant for every two common shares purchased during the offering at an exercise price of $2.50 per share.  These warrants will expire in December of 2024. At June 30, 2024, the intrinsic value was nil based on the market price of our common stock.