NOTE 5 – STOCK OPTIONS AND WARRANTS

The Company maintains two equity incentive plans: the 2022 Equity Incentive Plan (“2022 Plan”) and the 2021 Equity Incentive Plan (“2021 Plan” and, together with the 2022 Plan, the “Plans”). The 2022 Plan serves as the successor to the 2021 Plan. The Plans provide for the issuance of incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock grants and stock-based awards to employees, directors, and consultants of the Company.

2022 Equity Incentive Plan

Effective December 28, 2022, the Company implemented the 2022 Plan which was approved by the Company’s stockholders. The 2022 Plan is administered by the Compensation Committee of the Board (“Compensation Committee”) and has 2,750,000 shares available.

2021 Equity Incentive Plan

Effective June 30, 2021, the Company implemented the 2021 Equity Incentive Plan (“2021 Plan”) which was approved by the Company’s stockholders. The 2021 Equity Plan is administered by the Compensation Committee and had 166,667 shares available.

Stock Options

As of January 31, 2023, the Company had 281,936 outstanding stock options to its directors and officers (collectively, “Employee Options”) and consultants (“Non-Employee Options”).

During the nine months ended January 31, 2023, and 2022, the Company granted 251,002 and 7,334 Employee Options, respectively.

The fair value of the Employee Options at the date of grant was estimated using the Black-Scholes-Merton option-pricing model, based on the following weighted average assumptions:

The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For stock option grants issued during the nine months ended January 31, 2023, and 2022, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise behavior now and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company’s stock options of five years with the average vesting term of two and one-half years for an average of three years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life.

During the nine months ended January 31, 2023, the Company granted no Non-Employee Options.

A summary of the Company’s stock option activity and related information for the nine months ended January 31, 2023, are shown below:

A summary of the activity for unvested stock options during the nine months ended January 31, 2023, is as follows:

The Company recorded $629,265 and $7,365 of stock-based compensation related to the issuance of Employee Options to certain officers and directors in exchange for services during the three months ended January 31, 2023, and 2022, respectively, and $638,072 and $41,893 during the nine months ended January 31, 2023, and 2022, respectively. At January 31, 2023, there remained $0 of unrecognized compensation expense related to unvested Employee Options granted to officers and directors.

The following table summarizes the outstanding stock options by exercise price at January 31, 2023:

The aggregate intrinsic value of outstanding options as of January 31, 2023, was $2,958. This represents options with exercise prices less than the $2.89 per share closing price of the Company’s common stock on January 31, 2023.

Warrants

The warrants issued by the Company are equity classified. The fair value of the warrants was recorded as additional paid-in-capital, and no further adjustments are made.

The Company concluded the following warrants met the permanent equity criteria classification as they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued. The warrants are immediately exercisable and do not embody an obligation for the Company to repurchase the shares. The warrants also permit the holders to receive a fixed number of shares upon exercise and do not provide any guarantee of value or return.

The Company elected to early adopt ASU No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) as of May 1, 2021. The early adoption of ASU No. 2020-06 had an immaterial effect on the Company’s consolidated financial statements.

Effective August 12, 2021, the Company issued common stock purchase warrants (“Common Warrants”) with respect to the First Offering. The Company issued Common Warrants to purchase 4,028,528 shares of common stock pursuant to the underwriting agreement with H.C. Wainwright & Co., LLC (“Wainwright”). The Common Warrants expire August 12, 2026, have an exercise price of $4.25 per share, were fully exercisable upon issuance and have a cashless exercise feature. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these Common Warrants was approximately $9,385,000 which was included in the non-cash equity issuance costs as presented on the Consolidated Statements of Cash Flows of $34,477,000.

Additionally, with respect to the First Offering, the Company issued common stock purchase warrants to Wainwright (“Underwriter Warrants”) to purchase 264,706 shares of common stock. The Underwriter Warrants expire August 12, 2026, have an exercise price of $5.3125 per warrant share, were fully exercisable upon issuance and have a cashless exercise feature. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these Underwriter Warrants was approximately $601,000 which was included in the non-cash equity issuance costs as presented on the Consolidated Statements of Cash Flows of $34,477,000.

Effective August 12, 2021, the Company issued 899,027 pre-funded warrants (“Pre-funded Warrants”) to purchase common stock and Common Warrants pursuant to the underwriting agreement with Wainwright with respect to the First Offering. The Pre-funded Warrants were sold for $4.249 per Pre-funded Warrant share. The Company received approximately $3,820,000 from the issuance of the Pre-funded Warrants. The Pre-funded Warrants have an exercise price of $0.001 per share, were exercisable immediately, have a cashless exercise feature and do not have an expiration date. In August 2021, all 899,027 of the Pre-funded Warrants issued under the underwriting agreement were exercised. As a result of the exercise, the Company received $899 and issued 899,027 shares of common stock.

Effective August 23, 2021, the Company issued additional common stock purchase warrants (“Series A Warrants”) with respect to the Second Offering. The Company issued Series A Warrants to purchase 7,000,000 shares of common stock pursuant to the Securities Purchase Agreement with certain institutional investors. The Series A Warrants expire August 23, 2026, have an exercise price of $5.00 per warrant share, were fully exercisable upon issuance and have a cashless exercise feature. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these Series A Warrants was approximately $21,340,000 which was included in the non-cash equity issuance costs as presented on the Consolidated Statements of Cash Flows of $34,477,000.

Effective August 23, 2021, the Company issued additional common stock purchase warrants (“Placement Agent Warrants”) with respect to the Second Offering. The Company issued Placement Agent Warrants to purchase 1,050,000 shares of common stock to Wainwright or its designees pursuant to Wainwright acting as placement agent. The Placement Agent Warrants expire August 23, 2026, have an exercise price of $6.25 per warrant share, were fully exercisable upon issuance, and have a cashless exercise feature. Using the Black-Scholes-Merton option pricing model, the Company determined the aggregate fair value of these Placement Agent Warrants was approximately $3,151,000 and which was included in the non-cash equity issuance costs as presented on the Consolidated Statements of Cash Flows of $34,477,000.

Effective August 23, 2021, the Company issued Pre-funded Warrants pursuant to the Second Offering to purchase 5,570,000 shares of common stock for approximately $27,844,000 or $4.999 per warrant share. The Pre-funded Warrants have an exercise price of $0.001 per share, were fully exercisable upon issuance, have a cashless exercise feature and do not have an expiration date. As of January 31, 2023, 5,500,000 of the Pre-funded Warrants have been exercised for aggregate gross proceeds of $5,500, which resulted in the issuance of 5,500,000 shares. As of January 31, 2023, Pre-funded Warrants were exercisable for 70,000 shares of common stock remained outstanding. The Company received a total of $4,749,930 pursuant to the issuance of the Pre-funded Warrants as of January 31, 2023.

In August 2021, the Company received twenty-seven cash exercise notices relating to the Common Warrants with respect to the First Offering totaling 2,522,387 warrant shares. The Company received approximately $10,720,000 and issued 2,522,387 shares of common stock as a result of the exercise notices.

Series A Warrants and Placement Agent Warrants were issued pursuant to the Securities Purchase Agreement dated as of August 19, 2021. At the time, the Series A Warrants and the Placement Agent Warrants were issued, neither the Series A Warrants, the Placement Agent Warrants nor the underlying common stock for such warrants was registered pursuant to the Securities Act. The Company registered the common stock underlying the Series A Warrants and the Placement Agent Warrants pursuant to a Registration Statement on Form S-3 (“Registration Statement”) filed with the Commission on November 8, 2021. The Registration Statement was declared effective by the Commission on November 17, 2021.

A summary of the Company’s warrant activity and related information for the nine months ended January 31, 2023, are shown below:

The following table summarizes additional information concerning warrants outstanding and exercisable at January 31, 2023: