NOTE 11. STOCK WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK UNITS

The Company accounts for share-based compensation stock options and restricted stock units, and non-employee stock warrants whereby costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Unless otherwise provided for, the Company covers equity instrument exercises by issuing new shares.

Stock Warrants

In January 2023, the Company entered into a consulting agreement for professional services to be provided over a 6-month period in exchange for the issuance of 205 common shares and 205 warrants to purchase shares of common stock at $1,485 per share. The warrants expire three years from the date of issuance. The warrants were valued at $162,481 using the Black-Scholes model on the date of issuance, which was recognized over the six-month term of the agreement.

On March 9, 2023, in conjunction with the 2023 Debt Offering (see Note 8), the Company issued a total of 352 warrants to purchase shares of common stock at $2,772 per share. The warrants expire five years from the date of issuance. Total proceeds from the 2023 Debt Offering were allocated to the warrants based on their relative fair value, resulting in $398,517 allocated to the warrants after issuance costs.

On March 6, 2024, pursuant to the Adjustment terms of the September 2021 and the March 2022 Armistice Warrants as a result of the Inducement Letters, the Company issued an aggregate 2,418 warrants (the “Armistice Warrants”) consisting of (i) 1,934 warrants pursuant to the Adjustment terms under the September 2021 Armistice Warrant, and (ii) 484 warrants pursuant to the Adjustment terms of the March 2022 Armistice warrant. In addition, the Armistice Warrants include conditions where the warrant exercise price may be adjusted downward in the event securities instruments or exercise prices are subsequently issued or reduced, respectively, below the then current exercise prices of $1,485 per unit of the Armistice Warrants. Where the Inducement Letters stipulate a reduction in the warrant securities exercise prices below the Armistice Warrant exercise price of $1,485 per unit, the conditions of a downward adjustment were met reducing the Armistice Warrants exercise price permanently to $682 per unit. The additional issuance of the Armistice Warrants expire seven years from the date of the original issuance on September 28, 2021, and March 30, 2022, respectively. The difference with respect to the adjusted additional warrants is treated as a deemed dividend and a reduction in net income available to common stockholders of $23,270.

On March 6, 2024, pursuant to the Inducement letters, the exercise price for Common Stock Purchase Warrants issued on September 30, 2022, in relation to the PIPE Offering were permanently reduced to $682 per share. The difference with respect to the adjusted warrant exercise price is treated as a deemed dividend and a reduction in net income available to common stockholders.

In June 2024, the Company entered into a Warrant Inducement with a certain holder of its existing warrants to exercise for cash an aggregate of 9,382 shares of the Company’s common stock at a reduced exercise price of $297 per share. The value of the adjusted warrant exercise price of $341,297 was recorded as a reduction to Retained Earnings in conjunction with a deemed dividend of $1,455,805. The exercised warrants included warrants issued in the Amended and Restated common stock Purchase Warrants, with an initial exercise date of September 27, 2021, dated September 2022, the Amended and Restated Common Stock Purchase Warrants, with an initial exercise date of March 30, 2022, dated September 2022, and warrants issued under the Waiver agreement dated March 30, 2022. As part of the Warrant Inducement, the Company agreed to issue new unregistered warrants to purchase up to 18,763 shares of common stock. The warrants are exercisable upon the Company obtaining stockholder approval for purposes of complying with applicable Nasdaq rules with an exercise price of $297 per share. The warrants will expire five years following the issuance date. The total gross proceeds from the Warrant Inducement was $2,786,174 with net proceeds of $2,425,418 after deducting $360,756 in commissions and transaction costs.

Upon the close of the transaction, the Company issued the holder 5,184 of the 9,382 shares of common stock that were issuable upon exercise of the existing warrants. Due to the beneficial ownership limitation provisions in the inducement offer letter agreement, the remaining 4,198 shares were initially unissued, and reserved in abeyance with the Company’s transfer agent for the benefit of the holder until notice from the holder that the shares may be issued in compliance with the agreement. Upon notice from the holder on June 24, 2024, the Company issued 4,198 shares of common stock previously held in abeyance.

On June 4, 2024, pursuant to the Warrant Inducement, the exercise price for Common Stock Purchase Warrants issued on September 30, 2022, in relation to the PIPE Offering were permanently reduced to $297 per share. The difference with respect to the adjusted warrant exercise price is treated as a deemed dividend of $42,539 and a reduction in net income available to common stockholders.

In October 2024, the Company entered into a private investment in public equity offering (the “PIPE 2024 Offering”) pursuant to a Securities Purchase Agreement (the “Agreement”) and Registration Rights Agreement (the “Registration Rights Agreement”) where the Company agreed to issue an aggregate of 202,470 units (the “Units”) at a purchase price of $40.50 per unit, each Unit consisting of one share of common stock, par value $0.00001 per share, of the Company, or one pre-funded warrant in lieu thereof, two Series A Warrants, each to purchase one share of common stock at an initial exercise price of $38 per share, and one Series B Warrant to purchase such number of common stock as will be determined on the Reset Date. The Series A Warrants also include a reset feature, where, on the Reset Date, the exercise price shall be adjusted to equal the lower of (i) the exercise price then in effect and (ii) the Reset Price determined as of the date of determination. Upon such reset of the exercise price pursuant to the Series A Warrant, the number of warrant shares issuable upon exercise of the Series A Warrant shall be increased such that the aggregate exercise price payable thereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price on the issuance date for the warrant shares then outstanding. In accordance with the terms of the Series A and Series B Warrant Agreements and determination of the Reset Exercise Price in effect at December 31, 2024, the issuance of 1,603,370 Series A Warrants and 640,864 Series B Warrants. Under the terms of the Warrant Agreements, at the conclusion of the Reset Period and final determination of the Reset Exercise Price on the Reset Date, January 15, 2025, additional Series A and Series B Warrants may be issued.

During December 2024, the Company received exercise notices from various institutional investors at a weighted-average exercise price of approximately $9.60. In exchange for the issuance of 162,129 shares of common stock the Company received net proceeds of $1,652,034.

The fair values of stock warrants granted were determined using the Monte Carlo simulation and Black-Scholes option pricing models based on the following assumptions: 

The following table summarizes the changes in the Company’s outstanding warrants:

Share-Based Compensation

On October 24, 2019, the Company’s 2019 Equity Incentive Plan (the “Plan”) went effective authorizing 1,167 shares of Company common stock for issuance as stock options and restricted stock units (“RSUs”) to employees, directors or consultants. The Plan was approved by the Company’s Board of Directors and the holders of a majority of the Company’s voting stock on September 9, 2019. In January 2022, the stockholders approved and ratified an amendment to increase the shares authorized under the Plan to 1,576. In June 2024, the stockholders approved and ratified an amendment to increase the shares authorized under the Plan to 3,182.

The Company generally recognizes share-based compensation expense on the grant date and over the period of vesting or period that services will be provided.

Stock Options

As of December 31, 2024, and December 31, 2023, the Company has stock options granted and outstanding to acquire 1,323 and 1,541 shares of common stock under the Plan, respectively. As of December 31, 2024, the Plan had 1,048 vested options and 275 non-vested options. As of December 31, 2023, the Plan had 924 vested options and 617 non-vested options. The stock options are held by our officers, directors, employees, and certain key consultants.

For the years ended December 31, 2024, and 2023, the Company recorded in stock-based compensation expense $667,617 and $1,604,827, respectively, of share-based compensation related to stock options. The unrecognized compensation expense as of December 31, 2024, was $446,152 which will be recognized over a weighted average period of 12.4 months.

In applying the Black-Scholes options pricing model, assumptions used to compute the fair value of the stock options granted were as follows:

The following tables summarize the changes in the Company’s outstanding stock options: 

Restricted Stock Units

The Plan provides for the grant of RSUs. RSUs are settled in shares of the Company’s common stock as the RSUs become vested. During the year ended December 31, 2024, the Company granted no service based RSUs to executive officers and employees and no service based RSUs to directors. During the year ended December 31, 2023, the Company granted 135 service based RSUs to executive officers and employees and no service based RSUs to directors. All RSUs granted in 2023 vest during various periods between November 2023 and January 2026.

The following table summarizes RSU activity under the Plan:

For the years ended December 31, 2024, and 2023, the Company recorded in stock-based compensation expense $62,095 and $641,043, respectively, of RSU based compensation. The fair value of RSUs granted during the years ended December 31, 2024, and 2023 was none and $174,062, respectively. As of December 31, 2024, total unrecognized compensation costs of RSUs granted and outstanding but not yet vested was $62,095 which is expected to be recognized over 12 months.

Executive Officers Stock Options and RSUs

The Company had 701 vested and 251 unvested outstanding executive officers stock options exercisable at $528 to $2,552 per share with a weighted average remaining contractual life of 6.2 years as of December 31, 2024, and 398 vested and 419 unvested outstanding executive stock options exercisable at $869.20 to $2625.70 per share with a weighted average remaining contractual life of 7.5 years as of December 31, 2023. The Company had 90 unvested RSUs granted to executive officers with a remaining weighted average vesting period of 12 months as of December 31, 2024.  The Company had no vested and 90 unvested RSUs granted to executive officers as of December 31, 2024, with a remaining weighted average vesting period of 12 months. The Company had no vested and 194 unvested RSU’s granted to executive officers as of December 31, 2023, with a remaining weighted average vesting period of 1.7 years.

On January 30, 2023, the Company entered into an Employment Agreement with David Gandini to continue to serve as the Company’s Chief Executive Officer through December 31, 2025. On February 23, 2023, Mr. Gandini was granted stock options to acquire 464 shares of our common stock at an exercise price of $2,552 per share. The options vest in equal quarterly installments over a period of 34 months. Mr. Gandini has been granted a total of 756 stock options of which 592 were vested as of December 31, 2024. None of the vested stock options have been exercised and no shares have been issued as of December 31, 2024. On August 4, 2023, Mr. Gandini was granted 90 RSUs that vest January 1, 2026. The RSUs per share weighted average fair value at grant date was $1,683.

On February 23, 2023, Christopher Whitaker, the Company’s Chief Financial Officer, was granted stock options to acquire 60 shares of our common stock at an exercise price of $2,321 per share. The options vest in equal quarterly installments over a period of 25 months. On November 10, 2023, Mr. Whitaker was granted stock options to acquire 137 shares of our common stock at an exercise price of $528 per share. The options vest in equal quarterly installments over a period of 36 months. Mr. Whitaker has been granted a total of 197 stock options of which 110 were vested as of December 31, 2024. None of the vested stock options have been exercised and no shares have been issued as of December 31, 2024.