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STOCKHOLDERS EQUITY | 6 Months Ended
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Jun. 30, 2023
STOCKHOLDERS EQUITY |
STOCKHOLDERS' EQUITY | NOTE 7 - STOCKHOLDERS’ EQUITY Preferred Stock The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.0001 per share. As of June 30, 2023 and December 31, 2022, the Company had 86,000 shares of preferred stock issued and outstanding. No shares of preferred stock were issued during the six months ended June 30, 2023. Our Series E preferred stock is the only class of our preferred stock that is currently outstanding. Series E preferred stock has a stated value of $20 per share, which is convertible at any time after issuance at the option of the holder, subject to a beneficial ownership limitation of 4.99% or if waived, 9.99%, into common stock based on the stated value per share divided by $4.00 per share, subject to adjustment in the event of stock splits, stock dividends or reverse splits. Holders of Series E Preferred Stock are entitled to vote together with holders of the common stock on an as-converted basis, subject to a beneficial ownership limitation of 4.99% or if waived, 9.99%. If at any time while any shares of Series E Preferred Stock remain outstanding and any triggering event contained in the Certificate of Designation for such series occurs, we shall pay, within three days, to each holder $210 per each $1,000 of the stated value of each such holder’s shares of Series E Preferred Stock. Preferred Stock Penalties On March 31, 2019, we entered into certain agreements with investors pursuant to which we issued convertible preferred stock and warrants, as described above. Each of the series of preferred stock and warrants required us to reserve shares of common stock in the amount equal to two times the common stock issuable upon conversion of the preferred stock and exercise of the warrants. We did not comply in part due to our attempts to manage the Delaware tax which increases to a maximum of $200,000 as the authorized capital increases without the simultaneous increase in the number of shares outstanding. In May 2020 following stockholder approval at a special meeting the Company effected a reincorporation from Delaware to Nevada and a simultaneous increase in our authorized common stock from 31,250,000 shares to 250,000,000 shares, which we expect will be sufficient to meet the reserve requirements. As of December 31, 2019, we estimated that we owed approximately $6 million in penalties (prior to any waivers of penalties) to holders of preferred stock. Subsequent to December 31, 2019, we have received waivers from a substantial number of the preferred shareholders with respect to these penalties. We have agreed to issue to the holders of Series D Preferred Stock an aggregate of 106,134 additional shares of Series D Preferred Stock (valued at $1,929,516) as consideration for the waivers. We have accrued this cost at December 31, 2019. Additionally, certain holders of Series E and Series F Preferred Stock have not waived the penalties. We have accrued $308,893 at December 31, 2019 related to these Series E and Series F Preferred holders. Because of our ongoing liquidity problems, we will be required to cease operations if faced with material payment requests from investors who did not agree to waive the penalties. The total accrued penalty amount of $2,238,314 was included in accrued expenses on the balance sheet at December 31, 2019. The $1,929,516 accrual was reclassified to equity during the three months ended March 31, 2020 as a result of our issuance of the 106,134 shares of Series D Preferred Stock. At both June 30, 2023 and December 31, 2022, the remaining balance of $308,798 is included in accrued expense on the consolidated balance sheets. Common Stock The Company is authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share. As of June 30, 2023 and December 31, 2022 the Company had 17,792,151 and 16,277,764 shares of common stock outstanding, respectively. Shares issued upon exchange of common stock warrants On January 6, 2022, upon agreement with a warrant holder, the Company issued 112,726 shares of common stock upon the exchange of 112,726 warrants. The shares were valued at approximately $473,000 based on the stock price, while the exchanged warrants had a Black-Scholes value of approximately $321,000, resulting in a loss on exchange and credit to equity of $152,244. Reverse Stock Split On August 4, 2023, the Company approved a one-for-fifteen (1:15) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). Proportional adjustments for the Reverse Stock Split will be made to the Company’s outstanding stock options, warrants and equity incentive plans upon effectiveness. The Company is awaiting the approval of the Financial Industry Regulatory Authority (“FINRA”) for the market effectiveness of the Reverse Stock Split. The following is the unaudited pro-forma effect of the 1:15 Reverse Stock Split on the basic and diluted net loss per share:
|  | Three |  |  | Three |  |  | Six |  |  | Six |
|  | Months Ended |  |  | Months Ended |  |  | Months Ended |  |  | Months Ended |
Historical per share data – (Pre- Split basis) |  | June 30, 2023 |  |  | June 30, 2022 |  |  | June 30, 2023 |  |  | June 30, 2022 |
Net loss attributable to common shareholders |  | $ | (980,273 | ) |  | $ | (1,188,760 | ) |  | $ | (4,799,685 | ) |  | $ | (5,371,098 | )
Net loss per common share - basic and diluted |  | $ | (0.06 | ) |  | $ | (0.08 | ) |  | $ | (0.28 | ) |  | $ | (0.36 | )
|  | Three |  |  | Three |  |  | Six |  |  | Six |
|  | Months Ended |  |  | Months Ended |  |  | Months Ended |  |  | Months Ended |
Historical per share data – (Post- Split basis) (UNAUDITED) |  | June 30, 2023 |  |  | June 30, 2022 |  |  | June 30, 2023 |  |  | June 30, 2022 |
Net loss attributable to common shareholders |  | $ | (980,273 | ) |  | $ | (1,188,760 | ) |  | $ | (4,799,685 | ) |  | $ | (5,371,098 | )
Net loss per common share - basic and diluted |  | $ | (0.94 | ) |  | $ | (1.20 | ) |  | $ | (4.20 | ) |  | $ | (5.45 | )
The following is the unaudited pro-forma effect of the 1:15 Reverse Stock Split on the consolidated balance sheet:
|  |  |  |  |  |  |  | Pro-Forma Effect |
|  | June 30, |  |  |  |  |  | June 30, |
|  | 2023 |  |  | 1:15 Adjustment |  |  | 2023 |
ASSETS |  |  |  |  |  |  |  |  |
Total assets |  | $ | 11,202,109 |  |  | $ | - |  |  | $ | 11,202,109 |
Total liabilities |  |  | 9,342,147 |  |  |  | - |  |  |  | 9,342,147 |
Commitments and contingencies |  |  |  |  |  |  |  |  |  |  |  |
Stockholders' Equity (Deficit): |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock, Series D, $0.0001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |  |  | - |  |  |  |  |  |  |  | - |
Preferred stock, Series E, $0.0001 par value; 775,000 shares authorized; 86,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |  |  | 9 |  |  |  |  |  |  |  | 9 |
Preferred stock, Series F, $0.0001 par value; 200,000 shares authorized; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |  |  | - |  |  |  |  |  |  |  | - |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 17,792,151 and 16,277,764 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |  |  | 1,780 |  |  |  | (1,662 | ) |  |  | 118 |
Shares to be issued, 587,945 shares as of March 31, 2023 and December 31, 2022 |  |  | - |  |  |  | - |  |  |  | - |
Additional paid-in capital |  |  | 75,913,399 |  |  |  | 1,662 |  |  |  | 75,915,061 |
Accumulated deficit |  |  | (74,055,226 | ) |  |  |  |  |  |  | (74,055,226 | )
Total stockholders' equity |  |  | 1,859,962 |  |  |  | - |  |  |  | 1,859,962 |
|  |  |  |  |  |  |  |  |  |  | - |
Total liabilities and stockholders' equity |  | $ | 11,202,109 |  |  |  | - |  |  | $ | 11,202,109 |
|  |  |  |  |  |  |  | Pro-Forma Effect |
|  | December 31, |  |  |  |  |  | December 31, |
|  | 2022 |  |  | 1:15 Adjustment |  |  | 2022 |
ASSETS |  |  |  |  |  |  |  |  |
Total assets |  | $ | 14,133,284 |  |  | $ | - |  |  | $ | 14,133,284 |
Total liabilities |  |  | 9,054,967 |  |  |  | - |  |  |  | 9,054,967 |
Commitments and contingencies |  |  |  |  |  |  |  |  |  |  |  |
Stockholders' Equity (Deficit): |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock, Series D, $0.0001 par value; 2,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively |  |  | - |  |  |  |  |  |  |  | - |
Preferred stock, Series E, $0.0001 par value; 775,000 shares authorized; 86,000 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively |  |  | 9 |  |  |  |  |  |  |  | 9 |
Preferred stock, Series F, $0.0001 par value; 200,000 shares authorized; 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively |  |  | - |  |  |  |  |  |  |  | - |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 16,277,764 and 14,566,420 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively |  |  | 1,629 |  |  |  | (1,520 | ) |  |  | 109 |
Shares to be issued, 587,945 shares as of December 31, 2022 and December 31, 2021 |  |  | 59 |  |  |  | (55 | ) |  |  | 4 |
Additional paid-in capital |  |  | 74,332,161 |  |  |  | 1,575 |  |  |  | 74,333,736 |
Accumulated deficit |  |  | (69,255,541 | ) |  |  |  |  |  |  | (69,255,541 | )
Total stockholders' equity |  |  | 5,078,317 |  |  |  | - |  |  |  | 5,078,317 |
|  |  |  |  |  |  |  |  |  |  | - |
Total liabilities and stockholders' equity |  | $ | 14,133,284 |  |  |  | - |  |  | $ | 14,133,284 |
Restricted Stock Units On September 18, 2020 the Company awarded to Evan Sohn, our Executive Chairman and CEO, 221,600 restricted stock units (the “RSUs”) subject to and issuable upon the listing of the Company’s common stock on the Nasdaq Capital Market or NYSE American, or any successor of the foregoing (the “Uplisting”). The RSUs will vest over a two-year period from the date of the Uplisting in equal quarterly installments on the last day of each calendar quarter, with the first portion vesting on the last day of the calendar quarter during which the Uplisting takes place, subject to Mr. Sohn serving as an executive officer of the Company on each applicable vesting date, provided that the RSUs shall vest in full immediately upon the termination of Mr. Sohn’s employment by the Company without Cause (as defined in the Employment Agreement). The RSU award has been valued at $1,662,000 and compensation expense will be recorded over the estimated vesting period. We recognized compensation expense of $0 and $237,906 during the three months ended June 30, 2023 and 2022 respectively. During the six months ended June 30, 2023 and 2022, we recognized compensation expense of $152,143 and $506,862 respectively. The shares began vesting on June 30, 2021, the quarter the Uplisting occurred. No shares from those RSUs were issued during the three months ended June 30, 2023 and June 30, 2022, respectively. On February 2, 2022, 7,500 RSUs vested and 7,500 were issued to a vendor for services related to a 2021 agreement. The Company expensed the remaining $27,000 in 2022 as the service period expired. During the three months ended March 31, 2022, 32,000 RSUs were granted to vendors for services. 22,000 RSUs vested immediately and were issued as common stock to the vendor, and the remaining 10,000 were issued in May 2022. The total 32,000 RSUs were valued at $93,120 and were expensed as of March 31, 2022 based on the service period in the contract. Restricted stock grant activity for the periods identified below is as follows:
|  | Stock Awards |
Outstanding at December 31, 2021 |  |  | 146,000 |
Granted |  |  | 95,825 |
Vested |  |  | (88,325 | )
Vested and issuable |  |  | (7,500 | )
Forfeited or cancelled |  |  | - |
Outstanding at December 31, 2022 |  |  | 146,000 |
Granted |  |  | - |
Vested and issued |  |  | (110,800 | )
Vested and issuable |  |  | (35,200 | )
Outstanding at June 30, 2023 |  |  | - |

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