NOTE 5 – STOCK OPTIONS AND WARRANTS

2022 Equity Incentive Plan

Effective December 28, 2022, the Company implemented the 2022 Equity Incentive Plan (“2022 Equity Plan”) as approved by the Company’s stockholders. The 2022 Equity Plan is administered by the Compensation Committee of the Board and has 2,750,000 shares available under this plan. The 2022 Equity Plan can issue various types of awards, as follows: stock options, stock appreciation rights, restricted stock, restricted stock units, and cash or other stock-based awards. The 2022 Equity Plan is available to be issued to employees, directors, consultants, and other individuals who provide services to the Company. An incentive stock options (“ISOs”) can only be granted to employees and shall not exceed 10-years (5-years in the case of ISOs granted to any 10% shareholder).

Stock Options

As of October 31, 2024, the Company had 923,698 outstanding stock options to its directors and officers (collectively, “Employee Options”) and consultants (“Non-Employee Options”).

During the six months ended October 31, 2024, and 2023, the Company granted no Employee Options.

During the six months ended October 31, 2024 and 2023, the Company granted no Non-Employee Options.

A summary of the Company’s stock option activity and related information for the six months ended October 31, 2024, are shown below:

A summary of the activity for unvested stock options during the six months ended October 31, 2024 is as follows:

The Company recorded $119,155 and $341,833 of stock-based compensation related to the issuance of Employee Options to certain officers and directors in exchange for services during the three and six months ended October 31, 2024, respectively, and $0 and $0 for the three and six months ended October 31, 2023, respectively. At October 31, 2024, there remained $132,859 of unrecognized compensation expense related to unvested Employee Options granted to officers and directors.

The aggregate intrinsic value of outstanding options as of October 31, 2024 was $0. This represents options with exercise prices less than the $1.81 per share closing price of the Company’s common stock on October 31, 2024.

Warrants

Pursuant to the Private Placement (as defined below), the Company issued investors Warrants (as defined below) to purchase 8,750,000 shares of Common Stock, with an exercise price of $4.00 per share (subject to adjustment), for a period of five years from the date of issuance. For more information on the Private Placement, see “Note 12 – Preferred Stock”.

The Warrants were determined to be within the scope of ASC 480-10 as they are puttable to the Company at Holders’ election upon the occurrence of a Fundamental Transaction (as defined in the agreements). As such, the Company recorded the Warrants as a liability at fair value with subsequent changes in fair value recognized in earnings. The Company utilized the Black-Scholes-Merton Model to calculate the value of the Warrants issued on May 10, 2023. The fair value of the Warrants of approximately $14,127,000 was estimated at the date of issuance using the fair value of our common stock of $2.74 on the issuance date and was based on the following weighted average assumptions: dividend yield 0%; expected term of 5.0 years; equity volatility of 80.0%; and a risk-free interest rate of 3.37%.

Transaction costs incurred attributable to the issuance of the Warrants of approximately $913,640 were immediately expensed in accordance with ASC 480 and is included in general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.

During the three and six months ended October 31, 2024, the Company recorded a gain of approximately $1,829,000 and $3,913,000, respectively, related to the change in fair value of the warrant liability which is recorded in other income (expense) on the Condensed Consolidated Statements of Operations. The fair value of the Warrants of $6,871,000 was estimated at October 31, 2024, utilizing the Black-Scholes-Merton Model using the fair value of our common stock of $1.81 and the following weighted average assumptions: dividend yield 0%; remaining term of 3.53 years; equity volatility of 85.0%; and a risk-free interest rate of 4.05%.

A summary of the Company’s warrant activity and related information for the six months ended October 31, 2024, are shown below: