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Stockholders' Equity | 9 Months Ended
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Sep. 30, 2024
Stockholders |
STOCKHOLDERS' EQUITY | NOTE 5 – STOCKHOLDERS’ EQUITY Shares Authorized On September 19, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to effectuate a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding and authorized shares of common stock, par value $0.0001 per share (“Common Stock”). The Reverse Stock Split became effective on September 19, 2023. Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans, and authorized shares. On November 9, 2023, the Company filed a Certificate of Correction with the Secretary of State of the State of Nevada to correct a typographical error contained in the Certificate of Change that was filed with the Secretary of State of the State of Nevada on September 19, 2023 in order to effectuate the Reverse Stock Split. The Certificate of Change incorrectly stated that the authorized shares of preferred stock, par value $0.0001 per share following the change was 1,000,000. The Reverse Stock Split had no impact on the number of authorized shares of preferred, par value $0.0001, which remains unchanged at 20,000,000 shares. On December 27, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to increase the number of authorized common stock from 18,000,000 shares to 180,000,000 shares. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split. The authorized capital stock consists of 200,000,000 shares, of which 180,000,000 are shares of common stock and 20,000,000 are shares of preferred stock. 2021 Omnibus Equity Incentive Plan On July 26, 2021, the Company adopted the 2021 Omnibus Equity Incentive Plan, and authorized the reservation of 200,000 shares of common stock for future issuances under the plan. The Plan provides that the Company may grant options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards or any combination of the foregoing. On December 19, 2022, Company held its 2022 annual meeting of stockholders, and the shareholders approved to amend the Company’s 2021 Omnibus Equity Incentive Plan to increase the number of shares reserved for issuance thereunder to 300,000 shares from 200,000. On November 10, 2023, the board of directors of the Company approved the adoption of the Amended and Restated 2021 Omnibus Equity Incentive Plan, the sole purpose of which was to remove any inadvertent references to the Company being a Delaware corporation or the 2021 Omnibus Equity Incentive Plan being governed under Delaware law and to properly state that the Company is a Nevada corporation and that the 2021 Omnibus Equity Incentive Plan is governed by Nevada law. Preferred Stock Series A Preferred Stock In August 2016, the Company designated one share of Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which has a stated value equal to $1.00 as may be adjusted for any stock dividends, combinations or splits. Each one (1) share of the Series A Preferred Stock shall have voting rights equal to (x) the total issued and outstanding Common Stock eligible to vote at the time of the respective vote divided by (y) forty-nine one hundredths (0.49) minus (z) the total issued and outstanding Common Stock eligible to vote at the time of the respective vote. The Series A Preferred Stock does not convert into securities of the Company. The Series A Preferred Stock does not contain any redemption provision. In the event of liquidation of the Company, the holder of Series A Preferred shall not have any priority or preferences with respect to any distribution of any assets of the Company and shall be entitled to receive equally with the holders of the Company’s common stock. As of September 30, 2024 and December 31, 2023, there were no Series A Preferred Stock outstanding. Series B Preferred Stock On August 4, 2023, the Board filed the Certificate of Designation of Preferences (“COD”), Rights and Limitations of Series B Preferred Stock (the “Series B COD”) with the Secretary of State of the State of Nevada designating 2,000,000 shares of preferred stock as Series B (the “Series B Preferred”). The outstanding shares of Series B Preferred Stock shall have 10 votes per share and shall vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to the Authorized Stock Increase (as defined in the Series B COD) and shall not be entitled to vote on any other matter. The shares of Series B Preferred Stock shall be voted, without action by the holder, on the Authorized Stock Increase in the same proportion as shares of Common Stock are voted (excluding any shares of Common Stock that are not voted) on the Authorized Stock Increase. The Series B Preferred shall not have the right to vote and/or consent on any matter other than an Authorized Stock Increase Proposal. The Series B Preferred Stock shall not be entitled to participate in any distribution of assets or rights upon any liquidation, dissolution or winding up of the Company, shall not be convertible into Common Stock or any other security of the Company, and shall not be entitled to any dividends or distributions. The outstanding shares of Series B preferred shall be redeemed in whole, but not in part (i) if such redemption is ordered by the board of directors, or (ii) automatically and effective immediately after the effectiveness of an anticipated Authorized Stock increase. The aggregate consideration payable for the outstanding Series B Preferred redeemed in the redemption shall be $10 in cash (the “Redemption Price”). From and after the time at which the shares of Series B Preferred Stock is called for Redemption (whether automatically or otherwise) in accordance with Series B COD, such shares of Series B Preferred Stock shall cease to be outstanding, and the only right of the former holder of such shares of Series B Preferred Stock, as such, will be to receive the applicable Redemption Price. The shares of Series B Preferred Stock redeemed by the Company pursuant to the Series B COD shall be automatically retired and restored to the status of an authorized but unissued share of Preferred Stock, effective immediately after such Redemption. On August 4, 2023, the Company issued 2,000,000 of Series B preferred for aggregate cash of $1,000. Common Stock Sale of Common Stock and Warrants On January 16, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton LLC (the “Representative”), as the representative of the underwriters named therein (the “Underwriters”), relating to an underwritten public offering (the “Offering”) of 382,972 shares of the Company’s common stock (the “Shares”) and pre-funded warrants to purchase up to 590,000 shares of Common Stock (the “Pre-Funded Warrants”). The public offering price for each share of Common Stock was $1.85 for aggregate gross proceeds of $708,498, and public offering price for the Pre-Funded Warrants was $1.8499 for each Pre-Funded Warrant for aggregate gross proceeds of $1,091,441. In connection with this Offering, the Company raised aggregate gross proceeds of $1,799,939 and received net proceeds of $1,420,773, net of Underwriters discounts and offering costs of $279,166 and legal fees of $100,000. The per share exercise price for the Pre-Funded Warrants was $0.0001 and the Pre-Funded Warrants were exercisable immediately. The Underwriters immediately exercised the 590,000 Pre-Funded Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise was cashless. The Pre-Funded Warrants are not and will not be listed for trading on any national securities exchange or other nationally recognized trading system. The Company is using the net proceeds from the Offering for general corporate purposes, for sales and marketing and for research and development. The Underwriting Agreement contained customary representations, warranties and covenants made by the Company. It also provided for customary indemnification by each of the Company and the Underwriters, severally and not jointly, for losses or damages arising out of or in connection with the Offering, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement, each of the Company’s directors and executive officers entered into “lock-up” agreements with the Representative that generally prohibit, without the prior written consent of the Representative and subject to certain exceptions, the sale, transfer or other disposition of securities of the Company until July 17, 2024. Further, pursuant to the terms of the Underwriting Agreement, the Company agreed for a period of 180-days from the closing date, subject to certain exceptions, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of capital stock of the Company or any securities convertible or exercisable or exchangeable for shares of capital stock of the Company; (ii) file any registration statement; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company. On April 3, 2024, Dragon entered into a Securities Purchase Agreement with an institutional and accredited investor, pursuant to which Dragon agreed to sell an aggregate of 120,000 shares of Dragon’s common stock, par value $0.0001 per share for an aggregate purchase price of $36,000. Following the sale, the Company retained approximately 71.4% ownership of Dragon. On May 31, 2024, Dragon entered into a Securities Purchase Agreement with an institutional and accredited investor, pursuant to which Dragon agreed to sell an aggregate of 666,660 shares of Dragon’s common stock, par value $0.0001 per share for an aggregate purchase price of $199,998. Following the sale, the Company retains approximately 70.0% ownership of Dragon. During September 2024, Dragon entered into a Securities Purchase Agreement with investors pursuant to which Dragon agreed to sell an aggregate of 866,666 shares of Dragon’s common stock, par value $0.0001 per share for an aggregate purchase price of $260,000, or $0.30 per share. Following these sales, the Company retained approximately 54.5% ownership of Dragon (See Note 7 for subsequent decrease in ownership of Dragon). 2023 Stock Repurchase Plan On January 6, 2023, the Board of Directors of the Company approved a stock repurchase program authorizing the purchase of up to $2 million of the Company’s common stock (the “2023 Stock Repurchase Program”). In connection with the 2023 Stock Repurchase Program, during the year ended December 31, 2023, the Company purchased 66,945 shares of its common stock for $397,969, or at an average price of $5.94 per share, which has been reflected as treasury stock on the accompanying consolidated balance sheet on September 30, 2024 and December 31, 2023. During the nine months ended September 30, 2024, the Company did not purchase any treasury shares. During the nine months ended September 30, 2023, the Company purchased 66,944 shares of its common stock for $397,969, or at an average price of $5.94 per share. Common Stock Issued for Professional Services On March 6, 2023, the Company entered into a six-month consulting agreement with an entity for investor relations services. In connection with this consulting agreement, the Company issued 14,300 restricted common shares of the Company to the consultant. These shares vest immediately. These shares were valued at $100,000, or $6.99 per common share, based on the quoted closing price of the Company’s common stock on the measurement date. In connection with this consulting agreement, during the nine months ended September 30, 2024 and 2023, the Company recorded stock-based professional fees of $0 and $100,000, respectively. On July 25, 2023, the Company issued 19,802 of its common shares pursuant to a one-year consulting agreement. These shares were valued at $100,000, or a per share price of $5.05, based on the quoted closing price of the Company’s common stock on the measurement date. In connection with these shares, during the nine months ended September 30, 2024 and 2023, the Company recorded stock-based professional fees of $56,720 and $18,280, respectively. On January 25, 2024, Dragon entered into a 9-month consulting agreement with an individual for business development, financial and market due diligence services to be rendered over the term of the agreement. In connection with this consulting agreement, Dragon issued 1,500,000 of its shares for services to be rendered. The Dragon shares were valued at $22,500, or $0.015 per shares, based on the sale of the Dragon shares in a private transaction. In the connection with the issuance of these shares, during the nine months ended September 30, 2024, the Company recorded stock-based compensation of $20,089, and as of September 30, 2024, the Company recorded prepaid expenses of $2,411, which will be amortized into professional fees over the remaining term of the agreement. Stock Options 2023 On February 3, 2023, the Company granted an aggregate of 7,500 options to purchase the Company’s common stock to the Company’s board of directors. The options each have a term of 5 years from the date of grant and are exercisable at an exercise price of $12.50 per share. The options vest six months from date of grant. The stock options were valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period. On February 3, 2023, the Company granted an aggregate of 21,500 options to purchase the Company’s common stock to an officers, employees and consultants of the Company. The options each have a term of 5 years from the date of grant and are exercisable at an exercise price of $12.50 per share. The options vest 25% every six months from date of grant for 2 years. The stock options were valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period. On September 6, 2023, the Company granted an aggregate of 10,000 options to purchase the Company’s common stock to the Company’s chief financial officer (5,000 options) and to an employee of the Company (5,000 options). The options each have a term of 5 years from the date of grant and are exercisable at an exercise price of $15.00 per share. The options vest immediately. The stock options were valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period. The 2023 stock option grants were valued at the respective grant dates using a Black-Scholes option pricing model using the assumptions discussed below. In connection with the stock option grants, the Company valued these stock options at a fair value of $185,628, or an average of $4.76 per option. and records stock-based compensation expense over the vesting period. Upon cancellation of unvested stock options, the fair value of these cancelled options will be reversed. 2024 During the nine months ended September 30, 2024 and 2023, certain employees were terminated and accordingly, 18,100 and 33,000 unvested options were forfeited, respectively. During the nine months ended September 30, 2024, accretion of stock-based expense related to stock options amounted to $63,194 of which $13,430 was recorded in compensation and related expenses and $49,764 was recorded in professional and consulting expenses as reflected in the consolidated statements of operations. During the nine months ended September 30, 2023, the Company recognized total stock-based expenses related to stock options of $2,065,555 of which $1,979,794 was recorded in compensation and related expenses and $85,761 was recorded in professional and consulting expenses as reflected in the statements of operations. As of September 30, 2024, a balance of $4,380 remains to be expensed over future vesting periods related to unvested stock options issued for services to be expensed over a weighted average period of 0.35 years. During the nine months ended September 30, 2023, the stock options were valued at the grant date using a Black-Scholes option pricing model with the following assumptions. During the nine months ended September 30, 2024, the Company did not issue any stock options. The simplified method was used for the expected option term and expected volatility was based on historical volatility:
|  | 2023 |
Dividend rate |  |  | — | %
Term (in years) |  |  | 3 years |
Volatility |  |  | 168.0 | %
Risk—free interest rate |  |  | 3.96 | %
The following is a summary of the Company’s stock option activity for the nine months ended September 30, 2024 as presented below:
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life (Years) |
Balance on December 31, 2023 |  |  | 158,670 |  |  | $ | 105.30 |  |  |  | 3.12 |
Granted |  |  | - |  |  |  | - |  |  |  | - |
Cancelled |  |  | (18,100 | ) |  |  | 32.69 |  |  |  | - |
Balance on September 30, 2024 |  |  | 140,570 |  |  | $ | 114.65 |  |  |  | 2.26 |
Options exercisable on September 30, 2024 |  |  | 139,320 |  |  | $ | 115.56 |  |  |  | 2.25 |
Weighted average fair value of options granted during the 2024 period |  |  |  |  |  | $ | - |  |  |  |  |
On September 30, 2024, the aggregate intrinsic value of options outstanding was $0. Common Stock Warrants On January 16, 2024, in connection with the Underwriting Agreement, the Company sold pre-funded warrants to purchase up to 590,000 shares of Common Stock (the “Pre-Funded Warrants”). The public offering price was $1.8499 for each Pre-Funded Warrant for aggregate gross proceeds of $1,091,441. The per share exercise price for the Pre-Funded Warrants was $0.0001 and the Pre-Funded Warrants were exercisable immediately. The Underwriters immediately exercised the 590,000 Pre-Funded Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise was cashless. A summary of the Company’s outstanding stock warrants, including 44,252 Series A public warrants, is presented below:
|  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life (Years) |
Balance on December 31, 2023 |  |  | 67,385 |  |  | $ | 49.80 |  |  |  | 2.65 |
Issued |  |  | 590,000 |  |  |  | - |  |  |  | - |
Exercised |  |  | (590,000 | ) |  |  | - |  |  |  | - |
Balance on September 30, 2024 |  |  | 67,385 |  |  |  | 49.80 |  |  |  | 1.90 |
Warrants exercisable on September 30, 2024 |  |  | 67,385 |  |  | $ | 49.80 |  |  |  | 1.90 |
On September 30, 2024, the aggregate intrinsic value of warrants outstanding was $0.

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