Note 12 - Stockholders' Equity

12 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Equity [Text Block]

NOTE 12. STOCKHOLDERS' EQUITY

Common Stock Issued in Underwritten Offering

On March 9, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) between the Company and Maxim Group LLC (the “Underwriter”), relating to the Company’s upsized underwritten public offering (the “Offering”) of 1,650,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The Offering was made pursuant to the Company’s registration statement on Form S-1 (File No. 333-261522), previously filed with Securities Exchange Commission (SEC) and subsequently declared effective by the SEC on March 9, 2022.

Pursuant to the Underwriting Agreement, the public offering price was $2.00 per Share (the "Offering Price"), and the Underwriter purchased the Shares at a 7.0% discount to the public Offering Price. The Company granted the Underwriter the option to purchase, within 45 days from the date of the Underwriting Agreement, an additional 247,500 shares of Common Stock at the same price per share as the Shares (the “Over-Allotment Option”), which the Underwriter exercised in full on March 11, 2022. Maxim Group LLC acted as sole book-running manager for the Offering.

The Underwriting Agreement includes customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriter, including liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, the Company, each director and executive officer of the Company and certain significant stockholders of the Company have agreed not to sell, transfer or otherwise dispose of securities of the Company, without the prior written consent of the Underwriter, for a 180-day period, subject to certain limitations therein.

In exchange for the Underwriter's services, the Company agreed to (i) sell the Common Stock to the Underwriter at a purchase price of $1.86 per share of Common Stock, reflecting the underwriting discount of 7%, and (ii) issue the Underwriter (or its designees) the Warrants to purchase shares of Common Stock equal to 5.0% of the aggregate number of shares of Common Stock sold in the Offering, along with associated registration rights (the "Underwriter's Warrants").

On March 14, 2022, the Offering closed resulting in the Company selling a total of 1,897,500 shares of common stock, including 247,500 shares sold pursuant to the full exercise of the underwriter's over-allotment option. Gross proceeds from the offering were approximately $3,795,000 before underwriting discounts and other estimated offering expenses which totaled $265,650 and $545,090, respectively. There has been no material change in the planned use of proceeds as described in our final prospectus filed with the SEC on March 9, 2022 pursuant to Rule 424(b)(4).

Warrants to Purchase Common Stock

On March 14, 2022, pursuant to the Underwriting Agreement, the Company issued the Underwriter's Warrants to purchase up to an aggregate of 82,500 shares of Common Stock as compensation for their services related to this issuance. The Underwriter's Warrants may be exercised beginning on September 14, 2022, until March 14, 2027. The initial exercise price of each Warrant is $2.40 per share, which represents 120% of the Offering Price. The total fair value of the warrants granted to the Underwriter was $132,000. The Company estimated the fair value of the warrants using the Black-Scholes option pricing model using the following assumptions: Risk-free interest rate of 2.10%, expected life of 5 years, dividend yield of 0% and volatility of 117%. As the warrant issuance was for services rendered related to an equity issuance, no expense was recognized for the year ended June 30, 2023 and June 30, 2022 related to the issuance.

Convertible Preferred Stock

The Company has 50,000,000 shares authorized to issue as Preferred Stock. The Preferred Stock is designated into two series, 5,000,000 designated as Series A, and 45,000,000 designated as Series B. As of June 30, 2023 there are no issued or outstanding shares of Series A stock.

Each issued Series B Convertible Preferred Stock is convertible into 20 shares of common stock and carries a vote of 20 shares of common stock in all matters brought before the shareholders for a vote. On January 15, 2021, the Company converted 3,672 shares of Series B Convertible Preferred Stock to 73,440 shares of common stock per the request of the shareholder and pursuant to the stock designation. There are 49,360 shares of Series B Convertible Preferred Stock outstanding as of June 30, 2023 and June 30, 2022.

Stock-based Compensation

In August 2021, the Company adopted the 2021 Omnibus Equity Incentive Plan ("the Equity Plan") which provides for the grant of stock-based awards, including stock options, restricted stock awards ("RSA") and restricted stock units ("RSU"), to employees and non-employees. A total of 5,000,000 shares of common stock are authorized for issuance under the Plan, of which 4,441,267 are available for future grants as of June 30, 2023. 

The fair value of stock options are estimated on the date of grant using the Black-Scholes option pricing model and recognized as compensation on a straight-line basis between the date of grant and the date the options become fully vested. During the year ended June 30, 2023 the Company granted 270,000 stock options with a weighted average grant date fair value of $1.59 per share. No stock options were granted during the year ended June 30, 2022. Stock options issued have terms of ten years. The fair value of the options granted were estimated  using the following assumptions:

	For the Year Ended June 30, 2023
Expected volatility		191% - 197%
Expected term	6.6 years
Risk-Free interest rate		3.5% - 3.7%
Weighted-average fair value per share of grants	$	1.59
Expected dividend yield		0	%

The following table summarizes the stock option activities for the Company's Equity Plan for year June 30, 2023.

	Options Outstanding as of June 30, 2023
	Outstanding Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding as of July 1, 2022		-	$	-
Granted		270,000	$	1.61
Exercised		-	$	-
Forfeited		-	$	-
Outstanding and expected to vest as of June 30, 2023		270,000	$	1.61		9.6	$	-
Exercisable as of June 30, 2023		-	$	-			$	-

The fair value of these options, calculated using the Black-Scholes option-pricing model, was determined to be $428,300 using the assumptions note above. The estimated aggregate intrinsic value of stock options exercisable as of June 30, 2023 was $0. Stock-based compensation relating to stock options totaled $48,229 and $0 for the years ending June 30, 2023 and 2022, respectively, and are included in the consolidated statements of income. As of June 30, 2023, there was a total of $380,071 of unrecognized compensation expense related to outstanding stock options that will be recognized over a remaining weighted average period of 3.6 years.

The following table summarizes the restricted stock activities for the Company's Equity Plan for year June 30, 2023.

	Restricted Stock Outstanding as of June 30, 2023
	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested as of July 1, 2022		-	$	-
Granted		288,733	$	1.36
Vested		-	$	-
Forfeited		-	$	-
Nonvested as of June 30, 2023		288,733	$	1.36
Expected to vest		288,733

The fair value of RSA's is recognized as compensation on a straight-line basis between the date of grant and the date the RSA's become fully vested. The fair value of RSA's is estimated on the grant date based on the closing quoted market price of the Company's stock and generally vest over a period of a 4 year period following issuance date, subject to continued service.

During year ended June 30, 2023, the Company granted 288,733 RSA's with a weighted average grant date fair value of $1.36 per share and a total fair value at date of grant of $394,000. No RSA's were granted in the year ended June 30, 2022. The intrinsic value of the RSA's was $314,719 as of June 30, 2023. Stock-based compensation relating to RSA's totaled $35,288 and $0 for the years ended June 30, 2023 and 2022, respectively, and are included in the consolidated statements of income. As of June 30, 2023, there was $358,712 of unrecognized compensation expense related to outstanding RSA's that will be recognized over a remaining weighted average period of 3.2 years. Holders of RSA's generally have the rights and privileges of a stockholder with respect to the shares of common stock granted to the holder, including the right to vote such shares and the right to receive dividends with respect to such shares. However, all cash and stock dividends and distributions shall be held back by the Company for the holder's account until such time as the related portion of the restricted stock award vests (at which time such dividends or distributions, as applicable, shall be released and paid). The Company does not consider the shares of common stock associated with the RSA's to be issued and outstanding until vesting occurs.

The aggregate expected stock-based compensation remaining to be recognized as of June 30, 2023 was as follows:

Fiscal Period
Fiscal 2024	$	182,919
Fiscal 2025		217,798
Fiscal 2026		253,875
Fiscal 2027		83,280
Fiscal 2028		911
Total stock-based compensation	$	738,783

The aggregate expected stock-based compensation expense remaining to be recognized reflects only awards as of June 30, 2023 and assumes no forfeiture activity and will be recognized over a weighted-average period of approximately 3.4 years.

There were no shares issued for vendor services during the years ending June 30, 2023 and June 30, 2022.