STOCKHOLDERS’ EQUITY | NOTE 10 – STOCKHOLDERS’ EQUITY Common Stock On May 24, 2021, the Company increased the number of authorized shares of the Company’s common stock, par value $0.001 per share, from 27,000,000 to 100,000,000 (the “Authorized Shares Increase”) by filing a Certificate of Amendment (the “Certificate of Amendment”) to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. In accordance with the General Corporation Law of the State of Delaware, the Authorized Shares Increase and the Certificate of Amendment were approved by the stockholders of the Company at the Company’s Annual Meeting of Stockholders on May 19, 2021. On September 13, 2022, the Company effectuated a 1 for 50 reverse stock split (the “Reverse Split”). The Company’s stock began trading at the Reverse Split price effective on the Nasdaq Stock Market on September 14, 2022. There was no change to the number of authorized shares of the Company’s common stock. During the nine months ended September 30, 2022, the Company issued 16,476 shares of common stock and recognized expense of $253,719 in stock-based compensation for consulting services. The Company also granted 11,644 Restricted Stock Units and, 15,153 Restricted Stock Units vested which resulted in the issuance of shares. As a result, the Company recognized expense of $993,462 in stock-based compensation. The stock-based compensation for shares issued or RSU’s granted during the period were valued based on the fair market value on the date of grant. The Company issued 58,257 shares in relation to the issuance of notes (See Note 8). The Company issued 1,224,333 shares of common stock as part of the September 2022 Offering. The Company also issued 1,337,000 shares of common stock as a result of the exercise of prefunded warrants from the September 2022 Offering. During the nine months ended September 30, 2021, the Company issued 1,779 shares of common stock and recognized expense of $238,264 in stock-based compensation for consulting services. The Company also issued 23,272 shares of common stock upon the exercise of warrants and received $3,718,956 in cash proceeds. The Company granted 9,300 shares of restricted common stock for employee compensation and recognized expense of $1,443,700 in stock-based compensation. The Company also granted 28,908 Restricted Stock Units, of which 320 vested and resulted in the issuance of shares, as a result, the Company recognized expense of $674,265 in stock-based compensation. The Company issued 96,050 shares of common stock for the conversion of a convertible note. The Company issued 91,667 shares of common stock as part of the August 2021 Offering. The stock-based compensation for shares issued or RSU’s granted during the period, were valued based on the fair market value on the date of grant. Preferred Stock The Company is authorized to issue 3,000,000 shares of preferred stock, par value $0.001 per share. There were no shares of preferred stock outstanding as of September 30, 2022 and December 31, 2021, respectively. Issuance of Series B Preferred Stock: On July 19, 2022, the Company entered into a Subscription and Investment Representation Agreement with its Chief Executive Officer (the “Purchaser”), pursuant to which the Company agreed to issue and sell one (1) share of the Company’s Series B Preferred Stock (the “Preferred Stock”), par value $0.001 per share, to the Purchaser for $20,000 in cash. On July 19, 2022, the Company filed a certificate of designation (the “Certificate of Designation”) with the Secretary of State of Delaware, effective as of the time of filing, designating the rights, preferences, privileges and restrictions of the share of Preferred Stock. The Certificate of Designation provides that the share of Preferred Stock will have 250,000,000 votes and will vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to any proposal to amend the Company’s Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock. The Preferred Stock will be voted, without action by the holder, on any such proposal in the same proportion as shares of common stock are voted. The Preferred Stock otherwise has no voting rights except as otherwise required by the General Corporation Law of the State of Delaware. The Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Preferred Stock has no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Preferred Stock will not be entitled to receive dividends of any kind. The outstanding share of Preferred Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by the Board of Directors in its sole discretion or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split. Upon such redemption, the holder of the Preferred Stock will receive consideration of $20,000 in cash. On September 13, 2022, the share was redeemed. Stock-Based Compensation In October 2017, our Board of Directors adopted the Aditx Therapeutics, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of equity awards to directors, employees, and consultants. The Company is authorized to issue up to 2,500,000 shares of our common stock pursuant to awards granted under the 2017 Plan. The 2017 Plan is administered by our Board of Directors, and expires ten years after adoption, unless terminated earlier by the Board of Directors. All shares of our common stock pursuant to awards under the 2017 Plan have been awarded. On February 24, 2021, our Board of Directors adopted the Aditx Therapeutics, Inc. 2021 Omnibus Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock and restricted stock units, and other stock-based awards (collectively, the “Awards”). Eligible recipients of Awards include employees, directors or independent contractors of the Company or any affiliate of the Company. The Compensation Committee of the Board of Directors (the “Committee”) will administer the 2021 Plan. A total of 60,000 shares of common stock, par value $0.001 per share, of the Company may be issued pursuant to Awards granted under the 2021 Plan. The exercise price per share for the shares to be issued pursuant to an exercise of a stock option will be no less than one hundred percent (100%) of the Fair Market Value (as defined in the 2021 Plan) of a share of Common Stock on the date of grant. The 2021 Plan was submitted and approved by the Company’s stockholders at the 2021 annual meeting of stockholders, held on May 19, 2021. During the nine months ended September 30, 2022 and 2021, the Company granted no new options. The following is an analysis of the stock option grant activity under the Plan: Vested and Nonvested Stock Options Number Weighted Weighted Outstanding December 31, 2021 44,710 $ 170.00 6.74 Granted - - - Exercised - - - Expired or forfeited - - - Outstanding September 30, 2022 44,710 $ 170.00 5.99 Nonvested Stock Options Number Weighted- Nonvested on December 31, 2021 9,063 $ 108.50 Granted - - Vested (6,088 ) 110.23 Forfeited - - Nonvested on September 30, 2022 2,975 $ 105.71 The Company recognized stock-based compensation expense related to options granted and vesting expense of $660,191 during the nine months ended September 30, 2022, of which $472,156 is included in general and administrative expenses and $188,035 is included in research and development expenses in the accompanying statements of operations. The remaining value to be expensed is $310,887 with a weighted average vesting term of 0.88 years as of September 30, 2022. The Company recognized stock-based compensation expense related to options issued and vesting of $616,781 during the nine months ended September 30, 2021, which $556,817 is included in general and administrative expenses and $59,964 is included in research and development expenses in the accompanying statements of operations. Warrants During the nine months ended September 30, 2022 the Company issued 6,423,456 warrants. During the nine months ended September 30, 2021, the Company issued 113,750 warrants. For the nine months ended September 30, 2022, the fair value of each warrant granted was estimated using the assumption and/or factors in the Black-Scholes Model as follows: Exercise price $ 7.50-20.00 Expected dividend yield 0 % Risk free interest rate 2.55%-3.47 % Expected life in years 5.00-5.50 Expected volatility 147%-165 % For the nine months ended September 30, 2021, the fair value of each warrant issued was estimated using the assumption ranges and/or factors in the Black-Scholes Model as follows: Exercise price $ 200.00 Expected dividend yield 0 % Risk free interest rate 0.17%-0.42 % Expected life in years 3.00-5.00 Expected volatility 154%-159 % The risk-free interest rate assumption for warrants granted is based upon observed interest rates on the United States Government Bond Equivalent Yield appropriate for the expected term of warrants. The Company determined the expected volatility assumption for warrants granted using the historical volatility of comparable public companies’ common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future warrant grants, until such time that the Company’s common stock has enough market history to use historical volatility. The dividend yield assumption for warrants granted is based on the Company’s history and expectation of dividend payouts. The Company has never declared nor paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future. The Company recognizes warrant forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates. A summary of warrant issuances are as follows: Vested and Nonvested Warrants Number Weighted Weighted Outstanding December 31, 2021 601,400 $ 83.50 4.38 Granted 6,497,530 4.71 4.90 Exercised (1,516,419 ) 0.89 - Expired or forfeited (60,312 ) 38.33 - Rounding for Reverse Split 25 - - Outstanding September 30, 2022 5,522,224 $ 11.93 4.80 Nonvested Warrants Number Weighted- Nonvested on December 31, 2021 92,567 $ 75.50 Granted 6,497,530 4.71 Vested (6,016,340 ) 5.00 Forfeited (55,000 ) 20.00 Nonvested on September 30, 2022 518,757 $ 11.45 The Company recognized stock-based compensation expense related to warrants granted and vesting expense of $609,748 during the nine months ended September 30, 2022, of which $105,049 is included in general and administrative and $504,699 is included in sales and marketing in the accompanying Statements of Operations. The Company recognized stock-based compensation expense related to warrants granted and vesting expense of $163,637 during the nine months ended September 30, 2021, which is included in general and administrative in the accompanying Statements of Operations. The remaining value to be expensed is zero as of September 30, 2022. The weighted average vesting term is zero as of September 30, 2022. On June 15, 2022, the Company entered an agreement with a holder of certain of the Series C Warrants (the “Holder”). Pursuant to the agreement, the Holder has agreed to exercise in cash 179,419 of its Series C Warrants at a reduced exercise price of $7.50 per Share (reduced from $57.50 per share), for gross proceeds to the Company of approximately $1.35 million. As an inducement to such exercise, the Company has agreed to reduce the exercise price of the Holder’s remaining Series C Warrants to purchase up to 49,153 Shares from $57.50 to $12.395 per share, which will be non-exercisable for a period of six months following the closing date. The modification of this exercise price resulted in an increase of $344,158 to the fair value of the Series C Warrants. This modification was an inducement on the transaction and as such was recoded to equity resulting in no net change to additional paid in capital. In addition, the Company issued to the Holder a new warrant to purchase up to 407,991 shares of the Company’s common stock at an exercise price of $12.395 per share, which will be non-exercisable for a period of six months following issuance date and have a term of five and one-half years. This inducement resulted in a total increase of $3,759,044 to the fair value of the warrants. Restricted Stock Units A summary of Restricted Stock Units (“RSUs”) issuances are as follows: Nonvested RSUs Number Weighted Nonvested December 31, 2021 15,565 $ 96.00 Granted 11,644 22.74 Vested (15,153 ) 68.20 Forfeited (1,500 ) 77.42 Nonvested September 30, 2022 10,556 $ 57.87 The Company recognized stock-based compensation expense related to RSUs granted and vesting expense of $993,462 and $674,265 during the nine months ended September 30, 2022 and September 30, 2021, respectively, of which, $707,904 is included in general and administrative and $285,558 is included in research and development in the accompanying Statements of Operations. The remaining value to be expensed is $551,684 with a weighted average vesting term of 0.57 years as of September 30, 2022. During the nine months ended September 30, 2022, the Company granted a total of 11,644 RSUs. As of September 30, 2022, 15,513 RSUs vested and the Company issued 15,153 shares of common stock for the 15,153vested RSUs. |