Quarterly report pursuant to Section 13 or 15(d)

Equity

v3.22.2.2
Equity
9 Months Ended
Sep. 30, 2022
Equity [Abstract]  
EQUITY

NOTE 11 – EQUITY

 

Common Shares Sold for Cash

 

On December 13, 2019, the Company entered into an Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC, as sales agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its common stock. During the nine months ended September 30, 2022, Jefferies sold an aggregate of 170,640 shares of common stock at an average price of $0.79 per share to investors and the Company recorded net proceeds of $112,328, net of commission and other offering costs of $23,239.

 

On August 5, 2022, the Company sold 448,718 shares of common stock at a purchase price of $0.78 per share to Wenzhao Lu pursuant to a subscription agreement. The Company received proceeds of $350,000 (see Note 10 - Common Shares Sold to Related Party for Cash). As of September 30, 2022, the shares have not been issued and have been included in common stock to be issued at a value of $350,000 on the accompanying condensed consolidated balance sheets.

 

On August 5, 2022, the Company sold 320,513 shares of common stock at a purchase price of $0.78 per share to an investor pursuant to a subscription agreement. The Company received proceeds of $250,000. As of September 30, 2022, the shares have not been issued and have been included in common stock to be issued at a value of $250,000 on the accompanying condensed consolidated balance sheets.

 

Common Shares Issued for Services

 

During the nine months ended September 30, 2022, the Company issued a total of 408,957 shares of its common stock for services rendered and to be rendered. These shares were valued at $340,950, the fair market values on the grant dates using the reported closing share prices on the dates of grant, and the Company recorded stock-based compensation expense of $291,270 for the nine months ended September 30, 2022 and reduced accrued liabilities of $30,000 and recorded prepaid expense of $19,680 as of September 30, 2022 which will be amortized over the rest of corresponding service periods.

 

Common Shares Issued for Debt Conversion

 

On July 25, 2022, the Company and 2022 Convertible Note holder entered into a Conversion Agreement pursuant to which the investor converted its Convertible Notes in the principal amount of $3,718,943 and unpaid interest of $9,751 into 5,736,452 shares of common stock of the Company at a per share price of $0.65 (see Note 7). The Company recorded a conversion inducement charge of $344,264 as a result of the Conversion Agreement, representing the value of common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2022 Convertible Note.

 

Common Shares Issued Pursuant to Related Party Debt Settlement Agreement and Release

 

On July 25, 2022, the Company and Mr. Lu entered into and closed a Debt Settlement Agreement and Release pursuant to which the Company settled $2,440,262 debt owed under the Line of Credit and unpaid interest of $448,331 by issuance of 4,443,990 shares of common stock of the Company (see Note 10 - Line of Credit). The total amount of the debt settled of $2,888,593 exceeded the fair market value of the shares issued by $888,353 which was treated as a capital transaction due to Mr. Lu's relationship with the Company.

 

Options

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at September 30, 2022:

 

Options Outstanding     Options Exercisable  
Range of
Exercise Price
    Number
Outstanding at
September 30,
2022
    Weighted Average
Remaining
Contractual Life
(Years)
    Weighted
Average
Exercise
Price
    Number
Exercisable at
September 30,
2022
    Weighted
Average
Exercise
Price
 
$ 0.50 – 0.82       2,660,000       4.23     $ 0.56       2,440,000     $ 0.55  
  1.00 – 1.93       2,895,000       4.15       1.38       2,895,000       1.38  
  2.00 – 2.80       2,560,000       1.12       2.15       2,560,000       2.15  
  4.76       30,000       1.51       4.76       30,000       4.76  
$ 0.50 – 4.76       8,145,000       3.21     $ 1.37       7,925,000     $ 1.38  

 

Stock option activities for the nine months ended September 30, 2022 were as follows:

 

    Number of
Options
    Weighted
Average
Exercise
Price
 
Outstanding at January 1, 2022     7,725,000     $ 1.45  
Granted     660,000       0.73  
Expired/forfeited/exercised     (240,000 )     (2.26 )
Outstanding at September 30, 2022     8,145,000     $ 1.37  
Options exercisable at September 30, 2022     7,925,000     $ 1.38  
Options expected to vest     220,000     $ 0.68  

 

The aggregate intrinsic value of stock options outstanding and stock options exercisable at September 30, 2022 was $303,800 and $292,597, respectively.

 

The fair values of options granted during the nine months ended September 30, 2022 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 74.8% - 117.46%, risk-free rate of 1.37% - 3.56%, annual dividend yield of 0%, and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the nine months ended September 30, 2022 was $373,982.

 

The fair values of options granted during the nine months ended September 30, 2021 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: volatility of 121.52% - 128.42%, risk-free rate of 0.33% - 0.80%, annual dividend yield of 0% and expected life of 3.00 - 5.00 years. The aggregate fair value of the options granted during the nine months ended September 30, 2021 was $594,401.

 

For the three months ended September 30, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted to $110,442 and $188,859, of which, $87,300 and $134,833 was recorded as compensation and related benefits, $14,121 and $37,596 was recorded as professional fees, and $9,021 and $16,430 was recorded as research and development expenses, respectively. For the nine months ended September 30, 2022 and 2021, stock-based compensation expense associated with stock options granted amounted to $389,066 and $586,573, of which, $285,384 and $410,732 was recorded as compensation and related benefits, $71,719 and $120,584 was recorded as professional fees, and $31,963 and $55,257 was recorded as research and development expenses, respectively.

 

A summary of the status of the Company’s nonvested stock options granted as of September 30, 2022 and changes during the nine months ended September 30, 2022 is presented below:

 

    Number of
Options
    Weighted
Average
Exercise
Price
 
Nonvested at January 1, 2022     205,834     $ 1.04  
Granted     660,000       0.73  
Vested     (645,834 )     (0.85 )
Nonvested at September 30, 2022     220,000     $ 0.68  

 

Warrants

 

On March 28, 2022, the Company entered into Securities Purchase Agreement with an accredited investor, which was amended on June 8, 2022, providing for the sale by the Company to the investor of a Convertible Note in the amount of $3,718,943 (“2022 Convertible Note”). In addition to the 2022 Convertible Note, the investor also received a Stock Purchase Warrant (“2022 Warrant”) to acquire an aggregate of 1,239,647 shares of common stock. The 2022 Warrant is exercisable for five years at an exercise price of $1.25.

 

The fair values of the warrants issued to the investor with this private placement were computed using the Black-Scholes option-pricing model with the following assumptions: volatility of 111.94%, risk-free rate of 2.71% - 2.92%, annual dividend yield of 0% and expected life of 5 years. The warrants issued to the investor to purchase 1,239,647 shares of the Company’s common stock were treated as a discount on the convertible note payable and were valued at $498,509 and had been amortized over the term of the 2022 Convertible Note.

 

Stock warrant activities for the nine months ended September 30, 2022 were as follows:

 

    Number of
Warrants
    Exercise
Price
 
Outstanding at January 1, 2022    
-
    $
-
 
Issued     1,239,647       1.25  
Expired/exercised    
-
     
-
 
Outstanding and exercisable at September 30, 2022     1,239,647     $ 1.25  

 

The following table summarizes the shares of the Company’s common stock issuable upon exercise of warrants outstanding at September 30, 2022:

 

Warrants Outstanding     Warrants Exercisable  
Exercise Price     Number
Outstanding at
September 30,
2022
    Weighted Average
Remaining
Contractual Life
(Years)
    Number
Exercisable at
September 30,
2022
    Exercise
Price
 
$ 1.25       1,239,647       4.56       1,239,647     $ 1.25  

 

The aggregate intrinsic value of both stock warrants outstanding and stock warrants exercisable at September 30, 2022 was $0.