| Stockholders' Equity | Note 6 - Stockholders’ Equity Preferred Stock The Company is authorized to issue
up to 20,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, and shall have such designations,
preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall
be determined at the time of issuance by the Company’s board of directors without further action by the Company’s shareholders. On January 1, 2021, members of
the Company’s management subscribed for 1,100,000 shares of the Company’s to be designated Series C-2 Convertible Preferred
Stock (the “Series C-2”), for a total of $1,100,000 at $1.00 per Share of Series C-2. The Company obtained an independent
valuation of the Series C-2 and $179,277 of compensation expense was recognized, representing the difference between the fair value and
the proceeds received. The Series C-2 is not mandatorily
redeemable and is not unconditionally redeemable. The Series C-2 is callable by the Company. The Certificate of Designation required that
the Company, within 180 days of the Initial Issuance Date, call a special meeting of stockholders seeking shareholder ratification of
the issuance of the Series C-2. If the ratification of the issuance was not approved prior to the twelve-month anniversary of the Initial
Issuance Date (the “Vote Deadline”), the Series C-2 would be redeemed at a price equal to 107% of (i) the Stated Value per
share plus (ii) all unpaid dividends thereon. Provided; further, if the Company had filed a proxy with the SEC prior to the Vote Deadline
but was unable to conduct a vote prior to the Vote Deadline then the Vote Deadline shall be extended until such time as the vote is conducted.
The Series C-2 holders were not entitled to vote on the ratification. The call provision would have been automatically triggered if the
ratification of the issuance was not approved in a special meeting of stockholders prior to the twelve-month anniversary of the Initial
Issuance Date. The Company held the meeting within the required period and the Series C-2 is no longer redeemable. Based on the guidance in ASC 480-10-S99
(“ASR 268”), a redeemable equity instrument is not to be included in permanent equity. Rather, it should be reported between
long-term debt and stockholders’ equity, without a subtotal that might imply it is a part of stockholders’ equity (i.e., “temporary
equity” or “mezzanine capital”). ASR 268 specifies that redeemable stock is any type of equity security, including common
or preferred stock, when it has any condition for redemption which is not solely within the control of the issuer without regard to probability. The Series C-2 Certificate of
Designation required the Company to redeem the Series C-2 if stockholder approval was not received by the Vote Deadline. Stockholder approval
was not considered to be “solely within the Company’s control.” Stockholder approval occurred on March 31, 2021, at
which time the Series C-2 was no longer callable by the Company. As such, the Series C-2 was initially classified in temporary equity
under ASR 268 and was reclassified to permanent equity upon stockholder approval on March 31, 2021. The holders of Series C-2 shall
be entitled to receive dividends or distributions on each share of Series C-2 on an “as converted” into Common Stock when
and if dividends are declared on the Common Stock by the Board of Directors. Dividends shall be paid in cash or property, as determined
by the Board of Directors. At any time or times on or after
the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Series
C-2 held by such Holder into validly issued, fully paid and non-assessable shares of Common at the Conversion Rate. The Conversion Amount
is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically be converted at the earlier
of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneous with the Corporation’s Common Stock being
listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $.17 which resulted in a beneficial
conversion feature at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412 as a reduction
to the carrying amount of the convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion
date. The Conversion Amount may be adjusted
due to certain Anti-Dilution Events. If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess
of $5 million by issuing Common Stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product
of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Corporation after the Initial Issuance Date (the “ Capital
Raised Common Stock Issuance of Shares Pursuant to Equity Line of Credit
Purchase Agreement On January 28, 2021, the Company
filed a registration statement on Form S-1 seeking to register 4,000,000 shares (the “Registration Statement”). The Registration
Statement was declared effective by the SEC on February 1, 2021. During the three months ended
March 31, 2021, the Company issued 1,718,144 shares of common stock (including 117,545 pro-rata commitment shares) under the Registration
Statement pursuant to the equity line of credit purchase agreement with Cavalry (the “Equity Line”) resulting in aggregate
net proceeds of $2,014,259 (net of $750 of transfer agent fees) and $2,015,008 in gross proceeds at a per share price of $1.173 (inclusive
of the pro-rata commitment shares). Issuance of Shares Pursuant to Registered Direct
Offering On March 4, 2021, the Company
closed on a securities purchase agreement (the “Purchase Agreement”) with institutional investors, pursuant to which the Company
sold and issued, in a registered direct offering, 9,500,000 shares of the Company’s common stock, at a purchase price per share
of $1.00 and immediately exercisable five-year warrants to purchase 7,125,000 shares of common stock at an exercise price of $1.15 per
share (the “Warrants” and together with the common stock, the “Securities”). The gross proceeds from the offering
was $9.5 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by the Company, and
the net proceeds were $8.9 million. The Purchase Agreement contains
representations, warranties, indemnification and other provisions customary for transactions of this nature. Pursuant to the Purchase
Agreement, subject to limited exceptions, each of the Company and its officers and directors agreed not to, and not to publicly disclose
the intention to, sell or otherwise dispose of, any shares of common stock or any securities convertible into, or exchangeable or exercisable
for, common stock, for a period ending 60 days after the date of the prospectus supplement for this offering. The Company also entered into
a placement agent agreement (the “PA Agreement”) with A.G.P./Alliance Global Partners (“AGP”), pursuant to which
AGP agreed to serve as the exclusive placement agent for the Company in connection with that offering. The Company paid AGP a cash placement
fee equal to 7.0% of the aggregate gross proceeds raised in the offering (reduced to 3.5% for certain investors), and reimbursed the placement
agent for its legal fees and other accountable expenses in the amount of $40,000. Issuance of Shares Pursuant to Cash Exercise of
Series C Warrants On January 15, 2021, the Company
issued 2,000,000 shares of the Company’s common stock to Cavalry upon the exercise of all their Series C warrants and payment of
the exercise price of $400,000. Cavalry and the Company entered into an agreement whereby the Cavalry would exercise early for cash provided
that the Company register the underlying shares of common stock within 30 days of exercise. Issuance of Shares Due to Conversion of Series
C-1 Preferred Stock On March 30, 2021, the Company
issued 196,094 shares of common stock upon the conversion of 29,414 shares of Series C-1 Convertible Preferred stock. After this conversion,
there were no Series C-1 shares outstanding and the Company filed a Certificate of Withdrawal with the Secretary of State of the State
of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters set forth in the Series
C-1. Issuance of Restricted Stock to Service Providers During the three months ended
March 31, 2021, the Company issued to RedChip Companies Inc. and Launchnodes LTD, two service providers of the Company, 400,000 and 65,790
shares of restricted common stock respectively, with a total fair value of $0.5 million. 2021 Equity Incentive Plan The Company’s 2021 Equity
Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders on March 31, 2021. The Company
has reserved 20,000,000 shares of common stock for issuance pursuant to the 2021 Plan. Options On January 1, 2021, the Board
of Directors of the Company approved the grant of 12 million stock options with an exercise price of $0.19 under the Company’s 2021
Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective
as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing the option grants. While stockholder
approval (or ratification) of the grants was not required (under either the Stock Option Agreements or by the resolutions of the Board
of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants
to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders
ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those stock options. Of the stock options:
(i) 4.8 million options will vest on January 1, 2022 and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s
stock price meeting certain milestones. The Company records compensation expense for stock options based on the estimated fair value of
the options on the deemed grant date using the Black-Scholes-Merton option pricing formula with the assumptions included in the table
below. The Company uses historical data to determine the exercise behavior, volatility and forfeiture rate of the options. The following weighted-average
assumptions were used to estimate the fair value of options granted during:
Three-Months Ended March 31,
2021 2020
Dividend yield 0.0 % 0.0 %
Expected volatility 0.0 % 0.0 %
Risk-free interest rate 0.0 % 0.0 %
Expected term 0.0 years 0.0 years Expected Volatility Risk-Free Interest Rate Expected Term For awards vesting upon the achievement
of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period.
For awards vesting upon the achievement of the market conditions which were met at the date of grant, compensation cost measured on the
date of grant was immediately recognized. A summary of option activity under
the Company’s stock option plan for three months ended March 31, 2021 is presented below:
Number of Shares Weighted Average Total Intrinsic Value Weighted Average Remaining Contractual Life (in years)
Outstanding as of December 31, 2020 - $ - $ - -
Employee options issued 12,000,000 0.19 10,080,000 5.0
Outstanding as of March 31, 2021 12,000,000 $ 0.19 $ 10,080,000 5.0
Options vested and exercisable 7,200,000 $ 0.19 $ 6,048,000 5.0 RSUs On January 1, 2021, the Board
of Directors of the Company approved 2.75 million restricted stock unit grants under the Company’s 2021 Equity Incentive Plan to
Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as
of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the stock grants. While stockholder
approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements or by the resolutions of the Board
of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants
to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders
ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those restricted stock grants. The restricted
stock units vest when the Company lists its Common Stock on a national securities exchange. As of March 31, 2021, the restricted stock
units remained unvested. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market
value of the Company’s common stock at the deemed grant date. Because the listing on a national securities exchange is not
deemed probable of occurring until the event occurs, compensation cost measured on the deemed grant date will not be recognized until
the listing actually occurs. A summary of the Company’s
restricted stock units granted under the 2021 Plan during the three months ended March 31, 2021 are as follows:
Number of Restricted Weighted Average Grant Day Fair Value
Nonvested at December 31, 2020 - $ -
Granted 2,750,000 2,832,500
Nonvested at March 31, 2021 2,750,000 $ 2,832,500 Stock Based Compensation Stock-based compensation
expense for the three months ended March 31, 2021 was approximately $7.0 million, comprised of $59,000 for the issuance of restricted
common stock to service providers not pursuant to the 2021 Plan and approximately $7.0 million in connection with options issued pursuant
to the 2021 Plan. Unrecognized compensation expense for the Company’s was $5.2 million at March 31, 2021. $4.7 million of the unrecognized
compensation expense is expected to be recognized on January 1, 2022, $0.3 million expected to be amortized through September 2022 and
$0.1 million through February 2024. Share-based compensation expense is recorded as a part of selling, general and administrative expenses,
compensation expenses and cost of revenues. |
