STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2023

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 11.  STOCKHOLDERS’ EQUITY

2021 Preferred stock offering

On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $0.001 per share.  The total number of Units sold was 1,180.  Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants.  The purchase price of each Unit was $1,000, for an aggregate amount sold of $1,180,000.  Each share of Series A Preferred is convertible into 1,000 shares of common stock upon the consummation of a capital raise of not less than $5,000,000.  The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021.  The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value pers share, and sets forth the rights, restrictions, preferences and privileges of the Series A Preferred, summarized as follows:

● Authorized Number of Shares – 5,000

● Voting Rights – None

● Dividends – 6% per annum, ‘paid in kind’ in shares of Series A Preferred

● Conversion – Each share of Series A Preferred is mandatorily convertible into 1,000 shares of common stock upon a minimum capital raise of $5,000,000; sale, merger or business combination of the Company; or the Company listing on an exchange

● Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption

The Preferred Warrants have a five-year term and an exercise price per Preferred Warrant share of $1.05.  The warrants contain an anti-dilution provision pursuant to which upon a future capital raise at less than $1.00 per share, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis.

The proceeds received in the sale of the Series A Preferred totaled $1,180,000, for the issuance of 1,180 Series A Preferred, plus 354,000 warrants.  The warrants were valued using a Black Scholes model, at $117,131 and per the relative fair value allocation, $1,073,446 was allocated to the Series A proceeds.

As of June 30, 2023 we have recorded accrued dividends of $106,200.

Stock-based compensation

We use the fair value method to account for stock-based compensation on the grant date.  We recorded $18,054 and $28,886 in compensation expense for the three months ended June 30, 2023 and 2022, respectively and $45,450 and $105,001 for the six months ended June 30, 2023 and 2022, respectively.  This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period.  Forfeited options result in a reversal in the period forfeited. The fair value of these instruments was calculated using the Black-Scholes option pricing method.

During the year ended December 31, 2022, we granted options to purchase 250,000 common shares to directors.  The options expire five years from the date of grant and vest over a period of one year.  Fair value of the awards at the date of grants totaled $56,348.

The following summarizes Employee Awards activity:

				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2022	4,936,825	$	1.08	4.4	$	22,000
Granted	—		—
Forfeited or expired	—		—
Outstanding as of June 30, 2023	4,936,825	$	1.08	4.4	$	22,000
Exercisable as of June 30, 2023	4,936,825	$	1.08	4.4	$	22,000

As of June 30, 2023, there was no unrecognized compensation expense related to unvested employee awards.

On April 1, 2022 we entered into a Restricted Stock Unit Agreement with four participants.  The Restricted Stock Unit’s (“RSU”) were granted pursuant to our 2020 Omnibus Incentive Plan.  Four separate executives were each granted 300,000 RSU’s, for a total grant of 1,200,000 RSU’s.  The 300,000 RSU’s are divided into three equal tranches of 100,000 RSU’s.  Each tranche of RSU will vest immediately if and upon the market price reaching a certain minimum market price of our common stock as reported on the OTCQB market.  Each tranche will vest as the market price reaches $1.00, $2.00 and $3.00.  Upon the RSU’s vesting, the participant will be promptly issued shares of our common stock.  If there is a change in control, all unvested RSU’s granted under this agreement will become fully vested and the vested RSU’s will be paid out or settled.  The fair value of these instruments is $535,976 and was calculated using the Monte Carlo model.  The fair value of the RSU’s is recognized over the requisite service period.  As these RSU’s do not have a service period, we used the requisite service period derived from the valuation of 10 years.  We recorded $26,799 and $13,500 in compensation expense for the six months ended June 30, 2023 and 2022, respectively, and $12,905 and $13,500 for the three months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, none of the RSU’s have vested.