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Note N - Equity
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Equity [Text Block]

NOTE N— EQUITY

 

1. Preferred Stock

 

Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 5,000,000 shares of preferred stock, $.0001 par value per share, in one or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications.

 

2. Common Stock

 

Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have one vote for each share held of record and do not have cumulative voting rights.

 

Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.

 

Issuances of Common Stock

 

On June 18, 2021, the stockholders approved the 2021 Employee Stock Purchase Plan. Under the terms of this plan, 43,834 shares of common stock are reserved for issuance to employees and officers of the Company at 85% of the lower of the closing price of the common stock as reported on the Nasdaq Capital Market at the first day or the last day of the offering period. Eligible employees are granted an option to purchase shares under the plan funded by payroll deductions. The Board may suspend or terminate the plan at any time, otherwise the plan expires June 17, 2031. During 2024 and 2023, 2.641, and 17,478 shares respectively were issued under the ESPP to employees, which resulted in a $775, and $4,343 non-cash compensation expense respectively for the Company

 

On December 22, 2022, the Company issued the Commitment Shares. See Note K - Convertible Note Payable for more information.

 

Issuances of Restricted Stock

 

Restricted stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Restricted stock is expensed ratably over the term of the restriction period.

 

The Company issued 178,963 shares of restricted common stock to certain employees of the Company and 9,168 of shares of restricted common stock were forfeited during fiscal year 2024. The Company issued 16,404 shares of restricted common stock to certain employees of the Company and 3,752 of shares of restricted common stock were forfeited during fiscal year 2023.  These shares vest in equal annual installments over a three-year period from the date of grant.

 

Restricted stock compensation for the years ended December 31, 2024 and 2023 was $224,470 and $225,487, respectively.

 

Issuances to Directors, Executive Officers & Consultants

 

During the 2024 and 2023 years, the Company issued 12,048 and 3,078 shares of common stock respectively to its directors in lieu of payment of board fees, valued at $18,005 and $39,007 respectively.

 

Warrants

 

Warrants Issued with a Warrant Exercise Agreement:

 

On September 12, 2024, the Company entered into a Warrant Exercise Agreement ("inducement agreement") with an existing institutional investor for the immediate exercise of certain outstanding warrants that the Company issued on October 30, 2023. Pursuant to the warrant inducement agreement, the investor agreed to exercise outstanding warrants to purchase an aggregate of 1,030,556 shares of the Company's common stock at an amended exercise price of $1.85. The gross proceeds from the exercise of the warrants was approximately $1.9 million, prior to deducting placement agent fees and estimated offering expenses. In consideration for the immediate exercise of the warrants, the Company also agreed to issue to the investor unregistered Series A Warrants to purchase an aggregate of 1,030,556 shares of the Company's common stock and unregistered Series B Warrants to purchase an aggregate of 1,030,556 shares of the Company's common stock, each with an exercise price of $1.85 per share. The Series A Warrants and Series B Warrants share substantially the same terms, are immediately exercisable and will expire five years from the date of issuance. 

 

Warrants Issued with Convertible Note:

 

See Note K - Convertible Note Payable for the warrant issued with a convertible note in 2022.

 

Valuation Assumptions for Warrants:

 

The Company records the warrants at their fair value which is determined using the Black-Scholes valuation model on the date of the grant. The fair value of the warrants issued in 2023 and 2022 were estimated with the following assumptions:

 

  

Years ended

 
  

December 31,

 
  

2024

  

2023

 

Weighted average risk-free interest rate

  3.34%  4.63%

Weighted average exercise price

 $1.85  $3.15 

Weighted average exercise period

  5   5 

Weighted average Volatility of stock price

  

577

%  817%

 

The volatility for each issuance is determined based on the review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected exercise period. The five-year volatility is higher than the one-year rate from Bloomberg of 245%, based on several reverse-splits of BIO-key's stock over the five-year period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the years to maturity.

 

A summary of warrant activity is as follows:

 

          

Weighted

     
      

Weighted

  

average

     
      

average

  

remaining

  

Aggregate

 
  

Total

  

exercise

  

life

  

intrinsic

 
  

Warrants

  

price

  

(in years)

  

value

 
                 

Outstanding, as of December 31, 2022

  270,672   104.95   2.59   — 

Granted

  2,534,148   3.15         

Exercised

  (177,890)  0.0018         

Forfeited

  —   —         

Expired

  (438)  —         

Outstanding, as of December 31, 2023

  2,626,492  $104.95   4.37   — 

Granted

  2,061,112   1.85         

Exercised

  (1,903,222)  1.00         

Forfeited

  —   —         

Expired

  (13,889)  —         

Outstanding, as of December 31, 2024

  2,770,493  $10.99   4.19   — 

 

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $1.71, $3.00, and $10.62 as of December 31, 2024, 2023 and 2022, respectively, which would have been received by the warrant holders had all warrant holders exercised their options as of that date. There were no in-the-money warrants exercisable as of December 31, 2024, 2023 and 2022.