| Stockholders’ Equity | Note
6 - Stockholders’ Equity Preferred
Stock The
Company is authorized to issue up to 20,000,000 On
January 1, 2021, members of the Company’s management subscribed for 1,100,000 1,100,000 1.00 179,277 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 would have been
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
basis” 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) simultaneously with the Company’s
Common Stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $ 0.17
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 Company after the Initial Issuance Date (the “Capital Raised”). Provided; further,
for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much
capital the Company raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the
automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution
Amount. As of June 30, 2021, $13,715,008 of Capital Raised triggered an adjustment to the Conversion Amount. The Company recognized the
effect of the down-round protection when the capital raises occurred as the difference between: (1) the financial instrument’s
fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value
(without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $5,020,883 was
treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation .
As of June 30, 2021, the Series C-2 was convertible into 40,117,648
shares of common stock. 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 During
the six months ended June 30, 2021, the Company issued 2,887,776
shares of common stock (inclusive of 164,212
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 $ 2,814,133
(net of $ 875
in
transfer agent fees) and $ 2,815,008
in gross proceeds at a per share price of approximately
$ 0.975
(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”). Gross proceeds from the offering was $ 9.5
million. Net proceeds were $ 8.9 deducting placement agent fees and other offering
expenses paid for by the Company. The
Purchase Agreement contains representations, warranties, indemnifications 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 3.5 40,000 Issuance
of Shares Pursuant to Cash Exercise of Series C Warrants On
January 15, 2021, the Company issued 2,000,000 400,000 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 so 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 six months ended June 30, 2021, the Company issued to four service providers of the Company a total of 527,971
shares of restricted common stock, representing
a total fair value of $ 0.6
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 Options On
January 1, 2021, the Board of Directors of the Company approved the grant of 12 0.19 4.8 January 1, 2022 On
April 1, 2021, the Company granted 350,000
stock options with an exercise price of $ 1.03
to Charles B. Lee and Carol Van Cleef, directors
of the Company. Of the stock options: (i) 140,000
options will vest on April
1, 2022 and (ii) the remaining 210,000 The
Company records compensation expense for the 140,000
options
granted on April 1, 2021 based on the estimated fair value of the options on the deemed grant date using the Black-Scholes formula,
utilizing assumptions laid out in the table below. The Company uses historical data to determine exercise behavior,
volatility and forfeiture rate of the options. For the 210,000
options granted on April 1, 2021 that vest based
upon the Company’s stock price meeting certain milestones, the Company records compensation expense based on the estimated fair
value of the options using a Monte-Carlo simulation. The
following weighted-average assumptions were used to estimate the fair value of options granted during the six months ended 2021 and
2020 for both the Black-Scholes formula and the Monte-Carlo simulation: Summary of Weighted-average Assumptions Used to Estimate Fair Value
For the six months ended June 30,
2021 2020
Exercise price $ 0.21 -
Term (years) 2.50 3.30 -
Expected stock price volatility 185.9 % -
Risk-free rate of interest 0.34 % - 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. For awards vesting upon the achievement of the market conditions
which were not met at the date of grant, compensation cost measured on the grant date will be recognized on a straight-line basis over
the vesting period based on estimation using a Monte-Carlo simulation. A
summary of options activity under the Company’s stock option plan for six months ended June 30, 2021 is presented below: Summary of Option Activity
Number of Shares Weighted Average Exercise Price Total Intrinsic Value Weighted Average Remaining Contractual
Outstanding as of December 31, 2020 - $ - $ - -
Employee options granted 12,350,000 0.21 5,436,000 4.8
Outstanding as of June 30, 2021 12,350,000 $ 0.21 $ 5,436,000 4.8
Options vested and exercisable 7,200,000 $ 0.19 $ 3,261,600 4.8 RSUs On
January 1, 2021, the Board of Directors of the Company approved 2.75 On
April 1, 2021, the Company granted a total of 150,000
restricted stock units to Charles B. Lee
and Carol Van Cleef, directors of the Company. The restricted stock units vest when the Company lists its Common Stock on a national
securities exchange. As of June 30, 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. On
June 28, 2021, the Company granted 507,813
restricted stock units to Andrew Lee, the Company’s
Chief Financial Officer. The restricted stock units will vest over a five -year
period as follows: 20 %
of the 507,813
restricted stock units will vest on the one-year
anniversary of the grant date, and the remaining 80% will vest monthly over the following four years with vesting occurring on
the last day of each respective month. The grant date fair value of restricted stock units was approximately $ 0.3
million. A
summary of the Company’s restricted stock units granted under the 2021 Plan during the six months ended June 30, 2021 are as follows: Summary of Restricted Stock
Number of Restricted Weighted Average
Non-vested at December 31, 2020 - $ -
Granted 3,407,813 0.97
Non-vested at June 30, 2021 3,407,813 $ 0.97 Stock-based
Compensation Stock-based
compensation expense for the three months ended June 30, 2021 was approximately $ 8.8
million, comprised of $ 136,000
for the issuance of restricted common stock to
service providers not pursuant to the 2021 Plan and approximately $ 8.6
million in connection with options issued pursuant
to the 2021 Plan. Unrecognized compensation expense for the Company was $ 3.7
million on June 30, 2021. Stock-based
compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues. |
