Shareholders’ Equity (Deficit) | Note 8 – Shareholders’ Equity (Deficit) Common Shares Issued on Exercise of Warrants During the six months ended June 30, 2022, the Company temporarily reduced the exercise price of certain warrants issued as part of the Company’s $ 2.00 3.00 2.00 1.5 740,250 740,250 2.00 Common Shares Issued on Private Offerings During the six months ended June 30, 2022, the Company received net proceeds of approximately $ 195,000 65,000 3.00 3.00 4.00 December 31, 2023 32,500 During the six months ended June 30, 2021, the Company received net proceeds of approximately $ 4.8 2,372,000 2.00 2.00 3.00 December 31, 2022 Common Shares Issued for Financing Costs On May 16, 2022, the Company entered into an amendment (see Note 6) to extend the call provisions in its senior secured convertible notes to June 15, 2022, in exchange for issuing its senior convertible note holders an aggregate of 203,503 611,000 3.00 611,000 Common Shares Issued for Services During the six months ended June 30, 2022, the Company entered into various consulting agreements with third parties (“Consultants”) pursuant to which these Consultants provided business development, sales promotion, introduction to new business opportunities, strategic analysis and sales and marketing activities. In addition, the Company issued shares to a director for board service. During the six months ended June 30, 2022, the Company issued 122,500 368,000 200,000 600,000 During the six months ended June 30, 2021, the Company entered into various consulting agreements with third parties (“Consultants”) pursuant to which these Consultants provided business development, sales promotion, introduction to new business opportunities, strategic analysis and sales and marketing activities. In addition, the Company issued shares to a director for board service. During the six months ended June 30, 2021, the Company issued 826,000 1.7 Summary of Restricted Stock Units On May 17, 2022, the Company granted an aggregate of 200,000 600,000 10 no 75,000 525,000 Summary of Warrants A summary of warrants for the six months ended June 30, 2022 is as follows: Summary of Warrants Weighted Number of Average Options Exercise Price Balance outstanding, December 31, 2021 6,578,360 $ 4.97 Warrants granted 32,500 4.00 Warrants exercised (740,250 ) 2.00 Warrants expired or forfeited - - Balance outstanding, June 30, 2022 5,870,610 $ 3.28 Balance exercisable, June 30, 2022 5,770,610 $ 3.27 During the six months ended June 30, 2022, the Company received proceeds of approximately $ 1.5 740,250 740,250 2.00 During the six months ended June 30, 2022, the Company recognized $ 66,000 27,000 As of June 30, 2022, the outstanding and exercisable warrants have an intrinsic value of $ 200,000 200,000 3.00 Summary of Options A summary of stock options for the six months ended June 30, 2022 is as follows: Summary of Options Weighted Number of Average Options Exercise Price Balance outstanding, December 31, 2021 4,415,000 $ 2.00 Options granted 175,000 2.00 Options exercised - - Options expired or forfeited (50,000 ) 2.00 Balance outstanding, June 30, 2022 4,540,000 $ 2.00 Balance exercisable, June 30, 2022 1,535,833 $ 2.00 Information relating to outstanding options at June 30, 2022, summarized by exercise price, is as follows: Summary of Outstanding Options Exercise Price Outstanding Exercisable Weighted Weighted Exercise Price Life Average Average Per Share Shares (Years) Exercise Price Shares Exercise Price $ 2.00 4,540,000 8.52 $ 2.00 1,535,833 $ 2.00 4,540,000 8.52 $ 2.00 1,535,833 $ 2.00 On May 9, 2022, the Employment Agreement with Steve Handy, the Company’s Chief Financial Officer and Director of Operations was ratified, confirmed, and approved. The Employment Agreement is for a two-year period with an initial base salary of $ 220,000 per annum and increased by 5% on the first anniversary of the Employment Agreement. The Employment Agreement includes a cash severance provision of $ 100,000 if Mr. Handy’s employment is terminated without cause. The Company granted Mr. Handy stock options to purchase 100,000 shares of common stock under the Company’s 2022 Stock Incentive Plan, at an exercise price of $ 2.00 per common share, with a vesting period of two years, and an expiration period of five years. The total fair value of these options at grant date was approximately $ 220,000 , which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $ 3.00 per share, based on the Company’s current private offering price, the expected term of three years, volatility of 108 %, dividend rate of 0 %, and risk-free interest rate of 2.81 %. During the six months ended June 30, 2022, the Company granted employees aggregate options to purchase 75,000 shares of common stock under the Company’s 2022 Stock Incentive Plan, at an exercise price of $ 2.00 per common share, with a vesting period of twelve months, and an expiration period of five years. The total fair value of these options at grant date was approximately $ 306,000 , which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value of our stock price of $ 5.00 per share, based on the most recent valuation report, and valuation discussions with our former underwriters pursuant to our recently withdrawn initial public offering, and the Company’s current private offering price, the expected term of three years, volatility of 115 %, dividend rate of 0 %, and risk-free interest rate of 1.63 %. During the six months ended June 30, 2022, the Company recognized approximately $ 1,337,000 5,269,000 As of June 30, 2022, the outstanding and exercisable options have an intrinsic value of $ 4,540,000 1,536,000 3.00 | Note 8 – Shareholders’ Equity Shareholders’ Equity (Deficit) The following description summarizes the material terms of our capital stock. Our authorized capital stock consists of 100,000,000 0.0001 1,000,000 1 0.0001 32,405,146 1 Undesignated Preferred Stock Under the terms of our Certificate of Incorporation, our board of directors is authorized to issue shares of our undesignated preferred stock in one or more series without shareholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible future acquisitions and other corporate purposes, will affect, and may adversely affect, the rights of holders of common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until our board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following: ● restricting dividends on the common stock; ● diluting the voting power of the common stock; ● impairing the liquidation rights of the common stock; or ● delaying or preventing changes in control or management of our company. Once our board of directors approves the rights and preferences for a series of preferred stock, we will file a Certificate of Designation for such series of preferred stock with the Delaware Secretary of State formally establishing such rights and preferences. Series A Preferred Stock; Common Stock Voting Except as set forth below, each holder of Series A preferred stock has the same rights as holders of common stock and shall be entitled to notice of any shareholders’ meeting. They shall also be entitled to vote with the holders of common stock, and not as a separate class, except as may otherwise be required by law. Except as set forth below, each shareholder shall be entitled to one (1) vote for each share of stock outstanding. Except as set forth below or otherwise provided by the law of the State of Delaware, any corporate action to be taken shall be authorized by a majority of the votes cast by the shareholders. There are no cumulative rights to voting. Each share of Series A preferred stock is entitled to the number of votes equal to 110% of the number of votes of the common stock issued and outstanding. Additionally, for as long as any shares of Series A preferred stock are outstanding, the holders of Series A preferred stock shall be entitled to elect one director, or the Series A Director. Protective Provisions For as long as any shares of Series A preferred stock are outstanding, we must obtain the approval of at least a majority of the holders of the outstanding shares of preferred stock, voting as a separate class, to: ● Amend our articles of incorporation or, unless approved by our board of directors, including by the Series A Director, amend our bylaws; ● Change or modify the rights, preferences or other terms of the Series A preferred stock, or increase or decrease the number of authorized shares of Series A preferred stock; ● Reclassify or recapitalize any outstanding equity securities, or, unless approved by our board of directors, including by the Series A Director, authorize or issue, or undertake an obligation to authorize or issue, any equity securities or any debt securities convertible into or exercisable for any equity securities (other than the issuance of stock-options or securities under any employee option or benefit plan); ● Authorize or effect any transaction constituting a Deemed Liquidation (as defined in this subparagraph), or any other merger or consolidation of the Company, where a Deemed Liquidation shall mean: (1) the closing of the sale, transfer or other disposition of all or substantially all of the Company’s assets (including an irrevocable or exclusive license with respect to all or substantially all of the Company’s intellectual property); (2) the consummation of a merger, share exchange or consolidation with or into any other corporation, limited liability company or other entity (except one in which the holders of capital stock of the Company as constituted immediately prior to such merger, share exchange or consolidation continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring entity (or its parent entity)), (3) authorizing or effecting any transaction liquidation, dissolution or winding up of the Company, either voluntary or involuntary; provided, however ● Increase or decrease the size of our board of directors as provided in our bylaws or remove the Series A Director (unless approved by our board of directors, including the Series A Director); ● Declare or pay any dividends or make any other distribution with respect to any class or series of capital stock (unless approved by our board of directors, including the Series A Director); ● Redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any outstanding shares of capital stock (other than the repurchase of shares of common stock from employees, consultants or other service providers pursuant to agreements approved by our board of directors under which the Company has the option to repurchase such shares at no greater than original cost upon the occurrence of certain events, such as the termination of employment) (unless approved by our board of directors, including the Series A Director); ● Create or amend any stock option plan of the Company, if any (other than amendments that do not require approval of the shareholders under the terms of the plan or applicable law) or approve any new equity incentive plan; ● Replace the President and/or Chief Executive Officer of the Company (unless approved by our board of directors, including the Series A Director); ● Transfer assets to any subsidiary or other affiliated entity (unless approved by our board of directors, including the Series A Director); ● Issue, or cause any subsidiary of the Company to issue, any indebtedness or debt security, other than trade accounts payable and/or letters of credit, performance bonds or other similar credit support incurred in the ordinary course of business, or amend, renew, increase or otherwise alter in any material respect the terms of any indebtedness previously approved or required to be approved by the holders of the Series A preferred stock (unless approved by our board of directors, including the Series A Director); ● Modify or change the nature of the Company’s business; ● Acquire, or cause a subsidiary of the Company to acquire, in any transaction or series of related transactions, the stock or any material assets of another person, or enter into any joint venture with any other person (unless approved by our board of directors, including the Series A Director); or ● Sell, transfer, license, lease or otherwise dispose of, in any transaction or series of related transactions, any material assets of the Company or any subsidiary outside the ordinary course of business (unless approved by our board of directors, including the Series A Director). Dividends Subject to the rights of the preferred shareholders set forth in “Protective Provisions”, our board of directors shall have full power and discretion, to determine out of legally available funds what, if any, dividends or distributions shall be declared and paid. Dividends may be paid in cash, in property, or in shares of common stock. Shares of common stock and Series A preferred stock are treated equally and ratably, on a per share basis, with respect to any dividend or distribution from us. If a dividend is paid in the form of shares of common stock or rights to acquire common stock, the holders of common stock and Series A preferred stock shall both receive common stock or rights to acquire common stock. No dividends shall be declared or payable in the form of Series A preferred stock. Liquidation Rights If there is a liquidation, dissolution or winding up of the Company, holders of our common stock and Series A preferred stock would be entitled to share in our assets remaining after the payment of liabilities equally and ratably, on a per share basis. Conversion Voluntary Conversion: Each share of Series A preferred stock shall be convertible into one fully paid and nonassessable share of common stock at the option of the holder. Other Provisions Holders of our common stock and Series A preferred stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock or Series A preferred stock. Common shares issued on private offerings During the years ended December 31, 2021 and 2020, the Company received net proceeds of $ 5.2 2.5 2,597,500 1,269,250 2.00 2.00 3.00 December 31, 2022 Common shares issued for services The Company entered into various consulting agreements with third parties (“Consultants”) pursuant to which these Consultants provided business development, sales promotion, introduction to new business opportunities, strategic analysis and sales and marketing activities. During the year ended December 31, 2021, the Company issued 851,488 1.7 2.05 57,500 115,000 2.00 Summary of Warrants A summary of warrants for the years ended December 31, 2021 and 2020, is as follows: Summary of Warrants Weighted Average Number of Exercise Warrants Price Balance outstanding, December 31, 2019 643,750 $ 3.00 Warrants granted 634,625 3.00 Warrants exercised - - Warrants expired or forfeited - - Balance outstanding, December 31, 2020 1,278,375 3.00 Warrants granted 5,299,985 5.45 Warrants exercised - - Warrants expired or forfeited - - Balance outstanding, December 31, 2021 6,578,360 $ 4.97 Balance exercisable, December 31, 2021 6,378,360 $ 5.00 Information relating to outstanding warrants at December 31, 2021, summarized by exercise price, is as follows: Summary of Outstanding Warrants Exercise Price Outstanding Exercisable Exercise Price Per Share Share Life (Years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 2.00 200,000 2.50 $ 3.00 200,000 $ 2.00 $ 3.00 2,587,125 1.00 $ 3.00 2,587,125 $ 3.00 $ 4.00 200,000 2.50 $ 4.00 - $ 4.00 $ 6.61 3,591,235 2.76 $ 6.61 3,591,235 $ 6.61 6,578,360 2.06 $ 4.97 6,378,360 $ 5.00 During the year ended December 31, 2021, the Company issued warrants exercisable into an aggregate of 5,299,985 2.06 8.2 7.9 6.00 Warrants Issued in Private Offering In conjunction with the sale of the common shares issued as part of the Company’s $ 2.00 3.00 1,308,750 634,625 3.00 Warrants Issued with Senior Convertible Notes Payable In conjunction with the sale of senior convertible notes payable, the Company issued warrants to purchase an aggregate of 3,591,235 80 115 Warrants Issued under Advisory Board Agreement On July 1, 2021, the Company entered into a three-year consulting agreement (the “Agreement”) for which the consultant is to serve on the Company’s Advisory Board and provide services as defined in the Agreement. Per the terms of the Agreement, the Company is to pay the consultant $ 5,000 100,000 2.00 100,000 2.00 100,000 4.00 100,000 4.00 382,000 2.00 five years 108 0 0.25 During the year ended December 31, 2021, the Company recognized $ 288,000 93,000 Summary of Options 2016 Stock Incentive Plan The Company’s 2016 Equity Incentive Plan (the “Plan”) is for officers, employees, non-employee members of the Board of Directors, and consultants of the Company. The Plan authorized the granting of not more than 1 1 7 A summary of stock options for the year ended December 31, 2021 is as follows: Summary of Options Weighted Number of Average Options Exercise Price Balance outstanding, December 31, 2020 - $ - Options granted 4,415,000 2.00 Options exercised - - Options expired or forfeited - - Balance outstanding, December 31, 2021 4,415,000 $ 2.00 Balance exercisable, December 31, 2021 880,417 $ 2.00 Information relating to outstanding options at December 31, 2021, summarized by exercise price, is as follows: Summary of Outstanding Options Exercise Price Outstanding Exercisable Weighted Weighted Exercise Price Life Average Average Per Share Shares (Years) Exercise Price Shares Exercise Price $ 2.00 4,415,000 9.15 $ 2.00 880,417 $ 2.00 During the year ended December 31, 2021, as discussed below, the Company approved options exercisable into 4,415,000 7.6 1.5 6.1 As of December 31, 2021, the outstanding and exercisable options have an intrinsic value of $ 17.7 3.5 6.00 Options Issued under Executive Employment Agreements Chief Executive Officer On March 21, 2021, the Company and Mr. Destler, Chief Executive Officer “(the “Executive”), entered into an amended Employment Agreement (the “Amended Agreement”) (see Note 8). The Amended Agreement granted the Executive an option to purchase 4,000,000 2.00 April 1, 2031 83,333 2.00 6.8 2.00 seven years 107 0 1.34 1.1 Chief Financial Officer and Director of Operations On May 17, 2021, the Company entered into an employment agreement with Steve Handy to serve as its Chief Financial Officer and Director of Operations (the “Employment Agreement”). The term of the employment is for twelve months. Mr. Handy’s base salary is $ 200,000 100,000 The Employment Agreement granted the Executive an option to purchase 300,000 2.00 May 17, 2026 16,666 2.00 462,000 2.00 five years 106 0 0.83 269,000 Employee Option Grants During the year ended December 31, 2021, the Company granted its employees options to purchase an aggregate of 75,000 2.00 2.00 6.67 310,000 4.67 115 0 1.12 61,000 Options Issued under Advisory Board Agreements On August 18, 2021 and September 24, 2021, the Company entered into a one-year consulting agreement (the “Agreement”), with automatic annual renewals, for which the consultants are to serve on the Company’s Advisory Board and provide services as defined in the Agreement. Per the terms of the Agreement, the Company is to pay the consultants an aggregate amount of $ 10,000 40,000 2.00 40,000 53,000 2.00 110 0 0.90 17,000 |