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Warrants

12 Months Ended

Dec. 31, 2022

6. WARRANTS

The following table summarizes information with regard to warrants outstanding at December 31, 2022:

	Shares		Exercisable for	Weighted Average Exercise Price			Weighted Average Remaining Life (in Years)
Common Stock Warrants		811,882	Common Stock	$	3.24			3.1
Class A Warrants		2,484,000	Common Stock	$	7.00			3.8
Class B Warrants		75,400	Common Stock	$	10.00	¹		3.8

¹	Class B Warrants may also exercise such warrants on a “cashless” basis. See Class A Warrants and Class B Warrants subsection below.

No warrants were issued during the year ended December 31, 2022. The following assumptions were used in the Black-Scholes option pricing model to estimate the fair value of the warrants granted during the year ended December 31, 2021:

Risk-free interest rate			0.37% - 0.73%
Dividend rate			0%
Volatility			106.00% - 142.46%
Expected life (in years)			5

Common Stock Warrants

In March 2021, the Company granted a financial advisor warrants to purchase 226,599 shares of the Company’s common stock (the “Advisor Warrants”) as consideration for services in connection with the IPO. The warrants are exercisable at any time from the issuance date at the exercise price of $3.177 per share of common stock, subject to adjustment based on the amounts raised in the IPO, and have a 5-year term. These warrants were accounted for as equity and the grant date fair value was estimated to be $180,339 and were netted against the IPO proceeds. The terms of the advisory services agreement also provide for an incentive bonus of $200,000 payable upon closing of the IPO if such a closing occurs on or before January 31, 2022. This amount was netted against the IPO proceeds. As of December 31, 2022 and 2021, all of the Advisor Warrants remained outstanding.

In August 2021, the Company granted the Dawson Warrants to its placement agent for compensation for their services in relation to the issuance of the Convertible Debentures (see Note 5). As of December 31, 2022 and 2021, all of the Dawson Warrants remained outstanding.

In November 2021, the Company granted 108,000 warrants (the “Underwriter Warrants”) with an exercise price of $12.50, and a fair value of approximately $356,000, to the underwriter of the IPO which is in addition to the cash fees paid for underwriting the Company’s IPO. As of December 31, 2022 and 2021, all of the Underwriter Warrants remained outstanding.

In October 2020, in conjunction with the issuance of the Subordinated Notes, the Company granted 4,846,688 warrants (the “Subordinated Note Warrants”) to the noteholders, of which 944,160 were issued to LMBRI (see Note 4). In November 2021, the terms of some of the Subordinated Note Warrants were amended to provide for cashless exercise. During 2021, 4,718,251 of the Subordinated Note Warrants were exercised. As of December 31, 2022 and 2021, 128,438 of the Subordinated Note Warrants were outstanding.

Class A Warrants and Class B Warrants

In conjunction with the Company’s IPO as described in Note 1 the Company issued 2,160,000 Class A Warrants and 2,160,000 Class B Warrants. Additionally, the underwriter of the IPO exercised their overallotment option, solely with respect to the Class A Warrants and Class B Warrants, shortly after the IPO Date resulting in an additional issuance of 324,000 Class A Warrants and 324,000 Class B Warrants. From the net IPO proceeds, $5,164,751 and $7,323,161, respectively, were apportioned to the Class A Warrants and Class B Warrants.

Class A Warrants entitle the holder to purchase one share of common stock at an exercise price of $7.00 per share. As of December 31, 2022 and 2021 all Class A Warrants were outstanding.

Class B Warrants entitle the holder to purchase one share of common stock at an exercise price of $10.00 per share. Holders of Class B Warrants may also exercise such warrants on a “cashless” basis after the earlier of (i) 10 trading days from closing date of the offering or (ii) the time when $10.0 million of volume is traded in the Company’s common stock, if the volume weighted average price of the Company’s common stock on any trading day on or after the closing date of the offering fails to exceed the exercise price of the Class B Warrant (subject to adjustment as described in the warrant agreement). During 2022 and 2021, respectively, 40,100 and 2,368,500 Class B Warrants were exercised, all on a cashless basis. As of December 31, 2022 and 2021, respectively, 75,400 and 115,500 Class B Warrants were outstanding.

Warrants for Series B Redeemable, Convertible Preferred Stock

The 643 Series B Warrants (defined below) issued in conjunction with the Series B redeemable, convertible preferred stock (see Note 7) were accounted for as a derivative liability under ASC 480 – Distinguishing Liabilities from Equity. On June 1, 2021, the Series B Warrants were amended (“Amended Series B Warrants”) to become exercisable into 115,190 shares of common stock at an exercise price of $2.30 per share and are now reflected as common stock warrants in the table of outstanding warrants above. The Amended Series B Warrants were accounted for as equity and reclassified from liabilities into additional paid-in capital at the fair value determined as of the amendment date of $145,953.

The fair value of the outstanding the Amended Series B Warrants at June 1, 2021 was based on the assumptions as follows:

	June 1,
	2021
Risk-free interest rate		0.31% - 0.56%
Dividend rate		0%
Volatility		88.60%
Expected life (in years)		2.81– 4.22