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STOCK OPTIONS AND WARRANTS | 9 Months Ended
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Sep. 30, 2022
STOCK OPTIONS AND WARRANTS |
Stock Options And Warrants | NOTE 10 - STOCK OPTIONS AND WARRANTS Stock Options On January 6, 2022, the Company granted to a consultant a total of 20,000 options to purchase common stock, exercisable at $2.64 per share, under the terms of the 2021 Equity Incentive Plan (the “2021 Plan”). The options have a term of five years. The options vested 50% on March 3, 2022 and 50% on April 3, 2022. On January 10, 2022, the Company granted to a director a total of 15,000 options to purchase common stock, exercisable at $2.40 per share, under the terms of the 2021 Plan. The options have a term of five years. The options vest quarterly over a four-year period. On January 19, 2022, the Company granted to a director a total of 15,000 options to purchase common stock, exercisable at $2.40 per share, under the terms of the 2021 Plan. The options have a term of five years. The options vest quarterly over a four-year period. On January 20, 2022, the Company granted to directors a total of 60,000 options to purchase common stock, exercisable at $2.40 per share, under the terms of the 2021 Plan. The options have a term of five years. The options vest quarterly over a four-year period. On March 11, 2022, the Company granted to employees a total of 52,500 options to purchase common stock, exercisable between $2.87 and $2.95 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on June 11, 2022. On April 1, 2022, the Company granted an employee a total of 25,000 options to purchase common stock, exercisable at $2.47 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on July 1, 2022. On April 4, 2022, the Company granted to employees a total of 25,000 options to purchase common stock, exercisable at $2.12 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on July 4, 2022. On April 5, 2022, the Company granted an employee a total of 37,000 options to purchase common stock, exercisable at $2.12 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on July 1, 2022. On April 5, 2022, the Company granted to employees a total of 57,500 options to purchase common stock, exercisable at $2.12 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on July 5, 2022. On April 7, 2022, the Company granted to employees a total of 120,100 options to purchase common stock, exercisable at $2.03 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on July 7, 2022. On April 28, 2022, the Company granted a consultant a total of 35,000 options to purchase common stock, exercisable at $1.60 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest monthly over two months, with the first portion vesting on May 28, 2022. On May 17, 2022, the Company granted a consultant a total of 5,000 options to purchase common stock, exercisable at $1.07 per share, under the terms of the 2021 Plan. The options have a term of five years. The options vested immediately. On May 17, 2022, the Company granted to employees a total of 22,500 options to purchase common stock, exercisable at $1.07 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years with a one-year cliff, with the first portion vesting on May 17, 2023. On June 2, 2022, the Company granted a consultant a total of 25,461 options to purchase common stock, exercisable at $1.00 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest monthly over one year, with the first portion vesting on July 6, 2022. On June 27, 2022, the Company granted to employees a total of 37,500 options to purchase common stock, exercisable at $1.00 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest quarterly over four years with a one-year cliff, with the first portion vesting on June 27, 2023. On August 30, 2022, the Company granted to directors a total of 270,000 options to purchase common stock, exercisable at $1.31 per share, under the terms of the 2021 Plan. The options have a term of five years. The options vest immediately. On August 30, 2022, the Company granted to employees a total of 550,000 options to purchase common stock, exercisable at $1.31 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest months over two years. On September 22, 2022, the Company granted to employees a total of 80,000 options to purchase common stock, exercisable at $1.10 per share, under the terms of the 2021 Plan. The options have a term of five years. The options will vest months over two years. The fair values of stock options granted during the nine months ended September 30, 2022 were estimated using Black-Sholes option-pricing model with the following assumptions:
|  | September 30, 2022 |
Risk-free interest rates |  | 0.31-4.12 | %
Expected life (in years) |  | 1.00 - 5.00 |
Expected volatility |  | 136-226 | %
Dividend yield |  |  | 0 | %
During the three months ended September 30, 2022 and 2021, we recorded $765,743 and $1,564,091 of compensation expense, respectively, related to stock options. During the nine months ended September 30, 2022 and 2021, we recorded $2,544,898 and $2,729,160 of compensation expense, respectively related to stock options. A summary of the status of the Company’s stock options as of September 30, 2022, and changes during the period are presented below:
|  | Options Outstanding |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Life (In Years) |  |  | Aggregate Intrinsic Value |
Outstanding at December 31, 2021 |  |  | 2,671,177 |  |  | $ | 3.89 |  |  |  | 2.71 |  |  |  | 53,670 |
Granted |  |  | 1,452,561 |  |  |  | 1.58 |  |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Expired or cancelled |  |  | (402,026 | ) |  |  | 3.61 |  |  |  | - |  |  |  | - |
Outstanding at September 30, 2022 |  |  | 3,721,712 |  |  | $ | 3.20 |  |  |  | 3.08 |  |  |  | 21,718 |
Exercisable at September 30, 2022 |  |  | 698,208 |  |  | $ | - |  |  |  | 2.59 |  |  |  | 750 |
As of September 30, 2022, there was approximately $3,608,231 of unrecognized compensation cost related to unvested stock options which vest over time and are expected to be recognized over a period of four years, as follows: 2022 (remainder of year), $597,980; 2023, $1,636,341; 2024, $837,930; 2025, $501,599; and 2026, $34,381. Warrants On January 6, 2022, the Company issued 112,726 shares of common stock upon the exchange of 112,726 warrants (See Note 9). During August 2022, the Company granted 1,510,417 warrants as a part of various debt financings (See Note 7). These warrants had an exercise price per share of $2.00 and expire in five years. The exercise price of the warrants was then reduced from $2.00 to $0.98 in connection with the issuance of stock to Parrut on October 14, 2022 (see Note 14). The aggregate relative fair value of the warrants, which was allocated against the debt proceeds totaled $1,032,842 at the date of issuance based on the Black Scholes Merton pricing model using the following estimates: exercise price of $2.00, 3.04-3.27% risk free rate, 175.47% volatility and expected life of the warrants of 5 years. The relative fair value was reflected in additional paid-in capital and as a debt discount to be amortized over the term of the loans. As a result of the sale in August 2022 of notes and warrants as described above and in Note 7, the number and exercise price of the 2020 Warrants and the 2021 Warrants in connection with the 2020 and 2021 (See Note 8). Debentures was adjusted due to anti-dilution provisions in such warrants. The exercise price was reduced to $2.00 from $5.00 and the number of warrants was increased from 1,512,090 to 2,447,045. We have recorded a deemed dividend for the change in value due to the anti-dilution adjustments and an increase to the carrying value of the warrants of $658,266 as a result of the trigger of the anti-dilution provisions. On October 19, 2022, the exercise price of the warrants was then reduced from $2.00 to $0.98 in connection with the issuance of stock to Parrut (see Note 14). Warrants Recorded as Derivative Liabilities Series D Preferred Stock Warrants The Company identified embedded features in the warrants issued with Series D Preferred Stock in 2019 and 2020 which caused the warrants to be classified as a derivative liability. These embedded features included the right for the holders to request for the Company to cash settle the warrants to the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the warrants on the date of the consummation of a fundamental transaction, as defined in the warrant instrument. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as a liability and record the fair value of the instrument as a derivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date. During the three and nine months ended September 30, 2021, the Company recorded other expense of $211,614 and other income of $1,886,212, respectively, related to the change in the fair value of the derivative. On July 2, 2021, the Series D warrants were exchanged for 522,108 shares of common stock and consequently the embedded derivative was eliminated and $2,404,182 of derivative liability was reclassified to paid in capital. Convertible Debenture Warrants and Placement Agent Warrants The Company identified embedded features in the warrants issued with the convertible debt and the placement agent warrants in 2020 and 2021 (see Note 8) and which caused the warrants to be classified as a derivative liability. These embedded features included the right for the holders to request for the Company to cash settle the warrants to the holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the warrants on the date of the consummation of a fundamental transaction, as defined in the warrant instrument. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as a derivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date. As of the issuance date of the 2021 Debenture warrants, the Company determined a fair value of $5,040,080 for the 770,746 warrants. The fair value of the warrants was determined using the Black-Scholes Model based on a risk-free interest rate of 0.17% - 0.19%, an expected term of 3 years, an expected volatility of 215% - 216% and a 0% dividend yield. Of this amount, $1,454,097 was recorded as debt discount (see Note 8) and $3,585,983 was charged to expense as initial derivative expense. As of the issuance date of the 2021 placement agent warrants, the Company determined a fair value of $919,979 for the 139,950 warrants. The fair value of the warrants was determined using the Black-Scholes Model based on a risk-free interest rate of 0.17% -0.19%, an expected term of 3 years, an expected volatility of 215% and a 0% dividend yield. The value of $919,979 has been recorded as a debt discount for debt cost (see Note 8). In July 2021, we amended the debenture agreement and reduced the number shares to be received upon exercise by the placement agent warrants from 139,950 to 36,364. During the three and nine months ended September 30, 2021, the Company recorded other expense of $676,177 and other income of $5,429,368, respectively, related to the change in the fair value of the derivative. As a result of amendments to the 2020 and 2021 debenture warrants and placement agent warrants on July 2, 2021, the derivative feature of the warrants was eliminated and $7,405,224 of derivative liability was reclassified to paid in capital. The number of placement agent warrants issued in 2020 and 2021 was reduced in July 2021, from 287,606 to 72,728, and the exercise price was increased to $6.25.
|  |  |  |  | Weighted |
|  |  |  |  | Average |
|  |  |  |  | Exercise |
|  | Warrants |  |  | Price per |
|  | Outstanding |  |  | Share |
Outstanding at December 31, 2021 |  |  | 6,682,359 |  |  | $ | 4.92 |
Issued |  |  | 1,510,417 |  |  |  | 2.00 |
Increase due to trigger of anti-dilution provision |  |  | 1,047,681 |  |  |  | 2.00 |
Exchanged for common stock |  |  | (112,726 | ) |  |  | 5.00 |
Exercised |  |  | - |  |  |  | - |
Expired or cancelled |  |  | - |  |  |  | - |
Outstanding at September 30, 2022 |  |  | 9,127,731 |  |  | $ | 3.65 |

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