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STOCK OPTIONS AND WARRANTS

3 Months Ended

Mar. 31, 2023

STOCK OPTIONS AND WARRANTS

STOCK OPTIONS AND WARRANTS

NOTE 8 - 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% at 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 Equity Incentive 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 Equity Incentive 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 Equity Incentive 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 Equity Incentive 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 January 9, 2023, the Company granted to an employee a total of 25,000 options to purchase common stock, exercisable at $0.45 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options will vest quarterly over four years, with the first portion vesting on April 9, 2023.

On March 22, 2023, the Company granted three employees a total of 60,000 options to purchase common stock, exercisable at $0.22 per share, under the terms of the 2021 Equity Incentive Plan. The options have a term of five years. The options vested immediately.

The fair values of stock options granted during the three months ended March 31, 2023 were estimated using Black-Sholes option-pricing model with the following assumptions:

		March 31, 2023
Risk-free interest rates			3.76 – 3.93	%
Expected life (in years)			2.5 – 4.0
Expected volatility			122 - 175	%
Dividend yield			-

During the three months ended March 31, 2023 and 2022, we recorded $390,806 and $1,397,804 of compensation expense, respectively related to stock options.

A summary of the status of the Company’s stock options as of March 31, 2023, 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, 2022			3,705,121				3.05				2.80			$	-
Granted			85,000				0.29				-				-
Exercised			-				-				-				-
Expired or cancelled			(547,533	)			2.45				-				-
Outstanding at March 31, 2023			3,242,588				3.08				2.43			$	2,748
Exercisable at March 31, 2023			2,122,549				-				3.59			$	2,748

As of March 31, 2023, there was approximately $1,125,146 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: 2023 (remainder of year), $591,862; 2024, $356,401; 2025, $151,078; 2026, $25,748; and 2027, $57. The intrinsic value of options outstanding is $2,748 at March 31, 2023 and the intrinsic value of options exercisable is $2,748 at March 31, 2023.

Warrants

2023 Warrant Grants

Warrant repricing

On February 3, 2023, the Company entered into amendments to Common Stock Purchase Warrants issued on August 17, 2022 to each of Cavalry Fund I LP, Firstfire Global Opportunities Fund LLC, and Porter Partners, L.P. The warrant amendments modify the time period until the holders of these warrants are permitted to exercise the Warrants by means of a “cashless exercise.” In addition, the warrant amendments lower the exercise price of the Warrants to $0.38 per warrant share, as further described in the warrant amendments. These amendments were treated as modifications to induce the exercise of warrants, and as such, resulted in deferred equity costs of $10,400 on the date of the amendment. As a result of the lowered exercise price of the Warrants, the exercise price of warrants issued by the Company on May 28, 2020, January 5, 2021, January 20, 2021, August 17, 2022, and August 30, 2022, will be automatically lowered to $0.38 per warrant share due to anti-dilution provisions in these warrants. 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 $503,643 as a result of the trigger of the anti-dilution provisions.

Warrants exercised into Common Stock

In February 2023, we issued 821,521 common shares to investors who exercised warrants with a strike price of $0.38 for gross proceeds of $315,178.

2022 Warrant Grants

Warrant exchange for Common Stock

On January 6, 2022, the Company issued 112,726 shares of common stock upon the exchange of 112,726 warrants (See Note 7).

Warrants issued with Debt Financing

During August 2022, the Company granted 1,510,417 warrants as a part of various debt financings (See Note 6). 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. 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.

In connection with the October 19, 2022 Loan Agreement, as discussed in Note 6, the Company will issue 706,551 warrants to purchase common stock of the Company (the “Warrants”) to the Lender, with 622,803 Warrants issued and exercisable upon the Closing Date and the additional 83,708 Warrants becoming exercisable upon funding of the second Advance. The Warrants are exercisable for ten years from the Closing Date at an exercise price of $2.00 per share, subject to certain adjustments. Upon the earlier of the Maturity Date or a sale of the Company or other change in control, the Lender has the right to cause the Company to repurchase the Warrants (“Puttable Warrant”) for up to $703,125 ($600,000 if only the first Advance has been made and $703,125 if both Advances have been made). The Company is also obligated to pay the Lender a cash fee equal to 1.25% of the aggregate principal amount of the Advances that is outstanding on each anniversary of the Closing Date if (i) the average closing price of the Company’s common stock for the thirty (30) day period prior to such anniversary date is less than $2.00 or (ii) the closing price of the Company’s common stock for the date immediately prior to such anniversary date is less than $2.00.

The Company recorded the puttable warrant at its fair value, which is the cash surrender value the holder can put the warrant at. As such, on the issuance date, the Company recorded a $600,000 warrant liability for puttable warrants, offset by a debt discount to be amortized over the life of the loan. Upon the advance of the second advance tranche to the Company, it will record an additional debt discount and warrant liability in the amount of $103,125, the cash surrender value of the second tranche of warrants.

Warrant repricing

As a result of the sale in August 2022 of notes and warrants as described above and in Note 6, the number and exercise price of the 2020 Warrants and the 2021 Warrants in connection with the 2020 and 2021 debentures were 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, as a result of the Parrut earnout shares issued we reduced the exercise price of the 2020 and 2021 Debenture Note holder warrants from $2.00 to $0.98 due to anti-dilution provisions in these warrants. We also increased the number of warrants issued with the August 17, 2022 and August 30, 2022 notes (See Note 6) from 1,510,417 to 3,020,834 and reduced the exercise price from $2.00 to $0.98 due to anti-dilution provisions in these warrants. 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 $1,262,947 as a result of the trigger of the anti-dilution provisions.

Warrants for services

On December 8, 2022, the Company issued 30,000 five-year term warrants to a consultant with an exercise price of $1.00.

Warrant activity for the three months ended March 31, 2023 is as follows:

						Weighted
						Average
						Exercise
		Warrants				Price per
		Outstanding				Share
Outstanding at December 31, 2022			11,290,951			$	2.84
Issued			-				-
Exercised			(821,521	)			0.38
Expired or cancelled			-				-
Outstanding at March 31, 2023			10,469,430				2.72