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STOCKHOLDERS’ EQUITY
 3 Months Ended
Mar. 31, 2025
Equity [Abstract]  
STOCKHOLDERS’ EQUITY

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Designation of Series X Preferred Stock

 

On July 25, 2024, the Company revoked the authorization to issue shares of the Company’s Series A Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”). Concurrently with revoking the Company’s authority to issue Series A Preferred Stock, the Company authorized the issuance of up to 9,211,246 shares of the Series X Preferred Stock, a new class of preferred stock.

 

Holders of the Series X Preferred Stock are entitled to receive dividends on shares of the Series X Preferred Stock on an as-if-converted-to-Common-Stock basis, without regard to any beneficial ownership limitation described in a letter of transmittal, equal to and in the same form and manner as dividends are paid to holders of the shares of Common Stock. Subject to any requirements of the General Corporation Law of the State of Delaware, the Series X Preferred Stock has no voting rights. The Series X Preferred Stock ranks on parity with shares of Common Stock as to distributions of assets upon liquidation, dissolution, or winding up of the Company.

 

As consideration for the Scienture Merger, at the Effective Time of First Merger, the shares of Scienture common stock issued and outstanding immediately prior to the Effective Time were converted into the right to receive, in the aggregate, (i) 291,536 shares of the Company’s common stock and (ii) 6,826,753 shares of the Company’s Series X Preferred Stock, each share of which is convertible into one share of common stock.

 

On September 20, 2024, all previously issued shares of Series X Preferred Stock were converted into a total of 6,826,753 shares of common stock.

 

 

Common Stock

 

During the three months ended March 31, 2025, the Company issued 240,000 shares of common stock for services. The fair value of shares issued for services was $1,080,000 and was included in general and administrative expenses in the unaudited condensed consolidated statements of operations.

 

During the three months ended March 31, 2025, the Company issued 274,000 shares of common stock at a fair value of $411,000 pursuant to the conversion of the August 2024 convertible note of $314,354. Accordingly, the Company recognized a $96,646 loss on conversion.

 

Arena Note Commitment Shares

 

As additional consideration for the Purchaser’s execution and delivery of this Agreement, (i) concurrently with the execution and delivery of this Agreement on the First Closing Date (as defined below), the Company shall cause the Transfer Agent, to issue to each Purchaser participating in the first Closing or its designee on the First Closing Date its pro rata portion of 55,000 of the shares of Common Stock being issued as Commitment Shares in connection with the First Closing, and (ii) in connection with any Closing following the First Closing, the Company shall cause its Transfer Agent to issue to each Purchaser participating in such Closing or its designee a certain number of Commitment Shares. The aggregate number of Commitment Shares owing to each Purchaser in connection with any Closing following the First Closing will be agreed among the Company and the Purchasers participating in such Closing, and shall be set forth in an allocation table prior to such Closing (each a “Commitment Shares Allocation Table.”) For the avoidance of doubt, all of the Commitment Shares issuable in connection with the First Closing on the First Closing Date shall be fully earned as of the First Closing Date regardless of whether a Subsequent Closing shall occur (see Note 8).

 

In this connection, the Company issued to each Arena Investor participating in the First Closing its pro rata portion of 55,000 shares of the Company’s common stock. The fair value of shares issued was $420,200 was recognized as a debt discount, which was amortized to interest expense in full as commitment shares in connection with first closing was fully earned as of first closing date.

 

Equity Line of Credit

 

On November 25, 2024, the Company entered into a purchase agreement (“ELOC Agreement”) with Arena Business Solutions Global SPC II, Ltd (the “Investor”). Under the ELOC Agreement, the Company has the right, but not the obligation, to direct the Investor to purchase up to $50,000,000 in shares of the Company’s common stock (the “ELOC Shares”) upon satisfaction of certain terms and conditions contained in the ELOC Agreement, including, without limitation, and additional shares to be sold to the Investor from time to time under the ELOC Agreement. The term of the ELOC Agreement began on the date of execution and ends on the earlier of (i) the first day of the month following the 36-month anniversary of the execution date, (ii) the date on which the Investor shall have purchased the maximum amount of ELOC Shares, or (iii) the effective date of any written notice of termination delivered pursuant to the terms of the ELOC Agreement (the “Commitment Period”).

 

 

In consideration for the Investor’s execution and delivery of the ELOC Agreement, the Company agreed to issue to the Investor, as a commitment fee: (i) 70,000 shares of the Company’s Common Stock (“Initial Commitment Fee Shares”) and (ii) in two separate tranches, a number of additional shares of common stock (“Additional Commitment Fee Shares” and, together with the Initial Commitment Fee Shares, the “Commitment Fee Shares”) equal to (a) with respect to the first tranche, 500,000 divided by the simple average of the daily VWAP of our common stock during the five (5) trading days immediately preceding the effectiveness of the initial registration statement on which the Commitment Fee Shares are registered (the “Effectiveness Date”) and (b) with respect to the second tranche, 500,000 divided by the simple average of the daily VWAP of our common stock during the five (5) trading days immediately preceding the two (2) month anniversary of the Effectiveness Date. The Additional Commitment Fee Shares shall be subject to a true-up after each issuance pursuant to the terms of the ELOC Agreement.

 

In consideration for the Investor’s execution and delivery of the ELOC Agreement, the Company issued to the Investor, as a commitment fee, 70,000 shares of the Company’s common stock on November 25, 2024. The fair value of shares issued was $534,800 and was included in deferred offering costs in the consolidated balance sheets. In March 2025, the deferred offering costs previously capitalized were offset against the gross proceeds from the ELOC share issuances (see below).

 

In 2025, the Company issued to the Investor, as another commitment fee, in aggregate 450,437 shares of the Company’s common stock. The fair value of shares issued was $971,732 and was recognized as offering costs in connection with the related ELOC Agreement share issuances. Accordingly, the fair value of the shares issued were offset against the gross proceeds and there was no net effect to stockholders’ equity.

 

In March 2025, the Company issued in aggregate 2,800,000 shares of common stock pursuant to the above ELOC Agreement for aggregate gross proceeds of $4,597,999. After recognition of the related offering costs, the Company recognized a net increase to additional paid-in capital of $2,691,467.

 

Equity Compensation Awards

 

Each independent member of the Company’s board of directors (the “Board”) is to receive an annual grant of restricted common stock of the Company equal to $55,000 in value on April 1st of each year (or such date thereafter as the awards are approved by the Board), and valued on such same date, based on the closing sales price on such date (or the first business day thereafter), which restricted stock awards will vest at the rate of 1/4th of such awards over the following four calendar quarters, subject to such directors continued service to the Company.

 

The Company’s board of directors and stockholders approved an amendment to the Second Amended and Restated 2019 Equity Incentive Plan (Plan increasing the available shares under the Plan to 5,000,000 shares of the Common Stock as such common stock existed on July 24, 2024.