Stockholder Equity

12 Months Ended

Oct. 31, 2021

Equity [Abstract]

Stockholder Equity

Note 5 – Stockholder Equity

Additional Paid-In Capital

The Company’s Chief Executive Officer, Mr. Nirajkumar Patel, paid expenses on behalf of the Company totaling $16,257 during the year ended October 31, 2020, which is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.

The Company’s Chief Operating Officer, Mr. Eric Mosser, paid expenses on behalf of the Company totaling $10,900 during the year ended October 31, 2020, which is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.

Preferred Shares Issued

On August 19, 2020, the Company issued 3,000,000 shares of its Series A Preferred Stock, to Kaival Holdings, LLC (“KH”) in exchange for its return of 300,000,000 shares of Common Stock to the Company. No cash consideration was paid during this exchange. At the time of issuance, the Company evaluated the nature of the Series A Convertible Preferred Stock (the “Series A Preferred Stock”), concluded that it was more akin to equity and recorded it as permanent equity.

The authorized preferred stock of the Company consists of 5,000,000 shares with a par value of $0.001 per share, of which 3,000,000 shares were designated as Series A Preferred Stock . Each share of the Series A Preferred Stock is initially convertible into 100 shares of Common Stock. As a result of the Reverse Stock Split, the conversion rate was adjusted such that each share of the Series A Preferred Stock is convertible into approximately 8.33 shares of Common Stock. All 3,000,000 shares of Series A Preferred Stock were issued and outstanding as of October 31, 2021 and October 31, 2020.

Common Shares Issued

On November 1, 2020, the Company entered into a Consulting Agreement with Inflection Partners LLC (“Inflection Partners”), pursuant to which the Company engaged Inflection Partners to provide investor relations, corporate communication, marketing, strategic advising, and operational activities (collectively, the “Inflection Services”), in exchange for a $45,000 deposit, a $60,000 monthly retainer, 83,333 shares of restricted Common Stock due upon the execution of the agreement, and an incentive compensation of 83,333 shares of restricted Common Stock or warrants to purchase 125,000 shares of restricted Common Stock. On January 6, 2021, the Company entered into a new Consulting Agreement with Inflection Partners which replaced the original Consulting Agreement, pursuant to which the Company engaged Inflection Partners to provide “the Inflection Services”, in exchange for a $45,000 deposit, a $60,000 monthly retainer, 83,333 shares of restricted Common Stock due upon the execution of the agreement, and an incentive compensation of an aggregate of 166,667 shares of restricted Common Stock On October 15, 2021, the Company paid $100,000 and 225,000 shares of restricted Common Stock. The Consulting Agreement was terminated on October 31, 2021 and no further compensation is due. During the year ended October 31, 2021, 308,333 shares of restricted Common Stock were issued to Inflection Partners as compensation for services provided to the Company The fair value of the shares of Common Stock issued was $1,597,667. 

The Company implemented the Reverse Stock Split, effective prior to the opening of the market on Tuesday, July 20, 2021. The Reverse Stock Split was implemented by the Company in support of its application to list on the Nasdaq Capital Market (“Nasdaq”). As a result of the Reverse Stock Split at the 1-for-12 ratio, every 12 shares of the Common Stock was exchanged for one share of the Common Stock. The Company has retroactively adjusted all share amounts and per share data herein to give effect to the Reverse Stock Split.

The authorized Common Stock of the Company consists of 1,000,000,000 shares with a par value of $0.001. There were 30,195,312 and 23,106,886 shares of Common Stock issued and outstanding October 31, 2021 and October 31, 2020, respectively.

In September 2021, the Company completed a firm commitment underwritten offering, which offering was made pursuant to its Registration Statement on Form S-3 (File No. 333-258339) (the “Registration Statement”). The Securities and Exchange Commission (the “SEC”) declared the Registration Statement effective on August 10, 2021. The Company sold 4,700,000 million shares of our Common Stock and warrants, with an exercise price of $1.90 per share and an expiration of five years, to purchase an additional 3,525,000 shares of its Common Stock. The Company sold each share of its Common Stock and warrants to purchase 0.75 shares of its Common Stock at a combined public offering price of $1.70. The Company also granted the underwriter the option to purchase an additional 705,000 shares of its Common Stock and warrants to purchase an additional 528,750 shares of its Common Stock. As of October 31, 2021, the Company had received net proceeds from the offering of approximately $8,305,772, net of offering cost. The Company had also received approximately $1,665,113 from the exercise of 879,828 warrants.

During the year ended October 31, 2020, 318,671 shares of Common Stock were issued to two non-employee vendors as compensation for professional services rendered to the Company. These shares were expensed to the Company using the closing share price on the share issue dates to compute a total of $611,177

During the year ended October 31, 2021, 674,803 shares of Common Stock were issued to 8 non-employee vendors as compensation for professional services rendered to the Company and two officers as additional compensation. These shares were expensed to the Company using the closing share price on the grant dates to compute an aggregate fair market value total of $8,944,100, of which 308,333 shares and $1,597,667 compensation is related to shares issued to Inflection Partners disclosed above.

Warrants Shares Issued

The weighted average remaining term of the outstanding Common Stock warrants is 4.92 years as of October 31, 2021.

As part of the underwritten offering, the Company issued warrants to purchase a total of 4,053,750 shares of Common Stock at an exercise price of $1.90 per share. These warrants expire in the year 2026. During the year ended October 31, 2021, warrants for 879,828 shares were exercised for $1,665,113. The aggregate intrinsic value of the outstanding Common Stock warrants as of October 31, 2021 was $0.

The following is a summary of the stock warrant plan activity during the years ended October 31, 2021 and 2020.

	2021				2020
	Number of Warrants		Weighted Average Exercise Price		Number of Warrants		Weighted Average Exercise Price
Warrants Outstanding at Beginning of the year		—	$	—		—	$	—
Granted		4,053,750		1.90		—		—
Exercised		(879,828)		1.90		—		—
Canceled, forfeited, expired		—		1.90-		—		—
Warrants Outstanding and Exercisable at End of Year		3,173,922	$	1.90		—	$	—

Restricted Stock Unit Awards

During the fiscal year October 31, 2021:

During the twelve months ended October 31, 2021, 221,666 shares of Common Stock were issued to eight employees of the Company pursuant to restricted stock unit (“RSU”) agreements, resulting in $505,321 of share-based compensation. Of the shares issued to employees, 92,871 shares were withheld by the Company to satisfy tax withholding obligations equal to $254,110 as of October 31, 2021. Additionally, one employee resigned her employment from the Company and forfeited 23,333 RSUs Accordingly, there remains 499,167   unvested employee RSUs corresponding to $1,011,019 of unamortized stock expenses as of October 31, 2021.

On January 1, 2021, the Board of Directors approved the award of 41,667 “RSUs” under the 2020 Stock and Incentive Compensation Plan (the “Incentive Plan”) and made a grant to one employee. The RSUs had a fair value of $315,000 at the time of grant. The RSUs were awarded pursuant to restricted stock unit agreements (“RSU Agreement”), which provide for vesting over the course of three years, with a portion of the RSUs vesting every three months. The vesting schedules are set forth in the applicable RSU Agreements.

During the fiscal year October 31, 2020:

On May 28, 2020, the Board of Directors approved the award of 729,167  RSUs under the Incentive Plan to six employees. The RSUs were awarded pursuant to RSU Agreements, which provide for vesting over the course of three years, with a portion of the RSUs vesting every three months. The vesting schedules are set forth in the applicable RSU Agreements.

On June 1, 2020, the Board of Directors approved the award of 83,333 RSUs under the Incentive Plan to one newly-hired employee. The RSUs were awarded pursuant to a RSU Agreement, which provide for vesting over the course of three years, with a portion of the RSUs vesting every three months. The vesting schedules are set forth in the applicable RSU Agreement.

On July 26, 2020, the Company amended the RSU award agreements previously entered into with employees to include the option for employees of receiving a combination of cash and shares for their bonus, at the discretion of the Company. Any cash portion paid will be equal to the fair market value of the vested RSUs. The Company evaluated the amendments under ASC 718 and determined the amendment did not qualify as a modification. Any difference in the amount paid in cash and the fair market value of the shares purchased is recorded as additional compensation.

These shares were valued at fair market value on the grant dates, using the closing share price for those dates, for a total of $1,359,600, which is to be vested over the vesting period. During the year ended October 31, 2020, 110,000 shares of Common Stock were issued to seven employees of the Company under the RSU agreements, resulting in $158,260 of share-based compensation. As of October 31, 2020, 702,500 RSUs remain unvested, corresponding to $1,201,340 of unamortized stock expenses as of October 31,2020. .

Of the shares issued to employees, 18,833 shares were withheld by the Company to satisfy tax withholding obligations equal to $223,763. The shares had a fair market value on the settlement date of $179,922. The difference in the amount paid and fair market value was $49,743 and was recorded as additional compensation.

Stock Option Awards

During fiscal year 2021, the Company granted options exercisable for up to 150,000 shares of Common Stock of which 41,667 fully vested on December 1, 2021, 15,000 fully vested on March 17, 2021, 7,500 fully vested on June 30, 2021, 68,333 vest over the next 2 years on March 17, 2022, and 2023, and 17,500 vest over the next 2 years on June 30, 2022 and 2023. The options have exercise prices ranging from $9.12 to $28.68 per share. These options have a weighted average remaining life of 9.43 years as of October 31, 2021 and expire in the year 2031. On July 19, 2021, two of the stock option agreements, exercisable for an aggregate of 50,000 shares of Common Stock, were modified to accelerate the full vesting period from 3 years to 2 years. The aggregate intrinsic value of these outstanding options as of October 31, 2021 was $0.

The Company fair valued the options on the grant date at $3,088,002 using a Black-Scholes option pricing model with the following assumptions: stock price range of $9.12 to $27.36 per share (based on the quoted trading price on the date of grant), volatility range of 294.55% to 301.53%, expected term of 10 years, and a risk-free interest rate range of 1.19% to 1.63%. The Company is amortizing the expense over the vesting terms of each. The total stock option expense for the twelve months ended October 31, 2021 was $1,773,947. The total unamortized stock option expense at October 31, 2021 was $1,314,055.