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 under ASC 718, 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, utilizing the Black-Scholes pricing model for stock options and warrants, and the closing price of our common stock on the grant date for restricted stock units. 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 six-month period in exchange for the issuance of 225,000 common shares and 225,000 warrants to purchase shares of common stock at $1.35 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 will be recognized over the 6-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 386,998 warrants to purchase shares of common stock at $2.52 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. The exercise price on the warrants was reduced to $0.62 per share pursuant to the Inducement Letters. 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 shareholders.

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 2,659,031 warrants (the “Armistice Warrants”) consisting of (i) 2,127,225 warrants pursuant to the Adjustment terms under the September 2021 Armistice Warrant, and (ii) 531,806 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 $1.35 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 $1.35 per unit, the conditions of a downward adjustment were met reducing the Armistice Warrants exercise price permanently to $0.62 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 shareholders.

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 $0.62 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 shareholders.

The fair value of stock warrants granted during the three-month period ended March 31, 2024 was determined using the Black-Scholes option pricing model based on the following assumptions:

The following table summarizes the changes in the Company’s outstanding warrants during the three-month period ended March 31, 2024:

Share-Based Compensation

On October 24, 2019, the Company’s 2019 Equity Incentive Plan (the “Plan”) went effective authorizing 1,282,823 shares of the Company’s 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 1,733,333. In June 2023, the stockholders approved and ratified an amendment to increase the shares authorized under the Plan to 3,500,000.

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 March 31, 2024, and December 31, 2023, the Company has granted stock options to acquire 1,598,306 and 1,692,473 shares of common stock under the Plan, respectively. As of March 31, 2024, the Plan had 1,023,670 vested options and 574,636 non-vested options. As of December 31, 2023, the Plan had 1,014,828 vested options and 677,645 non-vested options. The stock options are held by our officers, directors, employees, and certain key consultants.

For the three months ended March 31, 2024, and 2023, the Company recorded $198,874 and $385,698, respectively, of share-based compensation expense related to stock options. Unrecognized compensation expense as of March 31, 2024, was $914,895 which will be recognized over a weighted average period of 19.2 months.

During the three-month period ended March 31, 2024, the Company did not grant any stock options to directors, officers, employee or other third-parties.

The following table summarizes the changes in the Company’s outstanding stock options during the three-month period ended March 31, 2024:

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 three months ended March 31, 2024, the Company did not grant any RSUs. On January 2, 2024, 115,000 shares of the Company’s common stock were issued for RSUs vested during 2024.

The following table summarizes RSU activity under the Plan for the three-month period ended March 31, 2024:

For the three months ended March 31, 2024, and 2023, the Company recorded $15,524 and $312,945, respectively, in stock-based compensation expense related to RSUs. As of March 31, 2024, total unrecognized compensation cost related to RSUs was $108,666 which will be recognized over a weighted average period of 21 months. 

Executive Officers Stock Options and RSUs

The Company had 574,495 vested and 471,210 unvested outstanding executive officers stock options exercisable at $0.48 to $2.32 per share with a weighted average remaining contractual life of 6.96 years as of March 31, 2024, and 437,372 vested and 460,000 unvested outstanding executive stock options exercisable at $0.7902 to $2.387 per share with a weighted average remaining contractual life of 7.51 years as of December 31, 2023.  The Company had no vested and 98,080 unvested RSUs granted to executive officers as of March 31, 2024, and December 31, 2023, respectively.