NOTE 12. 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 or the Monte Carlo simulation option pricing models 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 6-month period in exchange for the issuance of 2,046 common shares and 2,046 warrants to purchase shares of common stock at $148.50 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 9), the Company issued a total of 3,519 warrants to purchase shares of common stock at $277.20 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 24,174 warrants (the “Armistice Warrants”) consisting of (i) 19,339 warrants pursuant to the Adjustment terms under the September 2021 Armistice Warrant, and (ii) 4,835 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 $148.50 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 $148.50 per unit, the conditions of a downward adjustment were met reducing the Armistice Warrants exercise price permanently to $68.20 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.

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 $68.20 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 93,811 shares of the Company’s common stock at a reduced exercise price of $29.70 per share. 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 187,622 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 $29.70 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 51,838 of the 93,811 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 41,973 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. As of June 24, 2024, no shares remained 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 $29.70 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.

The fair values of stock warrants granted during the nine-month periods ended September 30, 2024, and 2023 were determined based on the following assumptions:

The following tables summarize the changes in the Company’s outstanding warrants during the nine-month periods ended September 30, 2024, and 2023:

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 September 30, 2024, and December 31, 2023, the Company has granted stock options to acquire 14,216 and 15,387 shares of common stock under the Plan, respectively.  As of September 30, 2024, the Plan had 10,741 vested options and 3,475 non-vested options. As of December 31, 2023, the Plan had 9,239 vested options and 6,162 non-vested options. The stock options are held by our officers, directors, employees, and certain key consultants.

For the nine months ended September 30, 2024, and 2023, the Company recorded $537,980 and $1,298,979, respectively, of share-based compensation expense related to stock options. For the three months ended September 30, 2024, and 2023, the Company recorded $168,720 and $456,524, respectively, of share-based compensation expense related to stock options. Unrecognized compensation expense as of September 30, 2024, was $575,789 which will be recognized over a weighted average period of 15 months.

For the nine months ended September 30, 2024, the Company did not grant any stock options to directors, officers, employees or other third parties. The weighted average grant date fair value per option granted during the nine-month periods ended September 30, 2023 was $206.80. The fair value was estimated at the grant date using the Black-Scholes option pricing model and the following assumptions:

The following tables summarize the changes in the Company’s outstanding stock options during the nine-month periods ended September 30, 2024 and 2023:

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.

The following tables summarize RSU activity under the Plan for the nine-month periods ended September 30, 2024 and 2023:

In total for the nine months ended September 30, 2024, and 2023, the Company recorded $46,571 and $537,695, respectively, in stock-based compensation expense related to RSUs. In total for the three months ended September 30, 2024, and 2023, the Company recorded $15,524 and $53,475 respectively, in stock-based compensation expense related to RSUs. As of September 30, 2024, total unrecognized compensation cost related to RSUs was $77,618 which will be recognized over a period of 15 months.

Executive Officer Stock Options and RSUs

The Company had 6,413 vested and 3,095 unvested outstanding executive officers stock options exercisable at $52.80 - $255.20 per share with a weighted average remaining contractual life of 6.46 years as of September 30, 2024, and 3,977 vested and 4,182 unvested outstanding executive stock options exercisable at $86.90 to $262.90 per share with a weighted average remaining contractual life of 7.51 years as of December 31, 2023. The Company had no vested and 892 unvested RSUs granted to executive officers as of September 30, 2024, and no vested and 1,938 unvested RSU’s granted to executive officers as of December 31, 2023.