Stockholders’ Equity

12 Months Ended

Oct. 31, 2022

Equity [Abstract]

Stockholders’ Equity

Note 5 – Stockholders’ Equity

Common Shares

During the fiscal year ended October 31, 2022:

During the year, the Company issued 39,637 common shares for services rendered with a fair value of $65,323. There were 25,000,000 common shares issued for the conversion of Series A Convertible Preferred Stock to Common Stock, see preferred shares converted below. The Company issued 855,605 for $1,625,650 proceeds for the exercise of warrants.

During the fiscal year ended October 31, 2021:

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.

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.

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. 

Preferred Shares Converted

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 Convertible Preferred Stock (the “Series A Preferred Stock”). Each share of the Series A Preferred Stock was initially convertible into 100 shares of Common Stock; however, 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. On June 24, 2022, all 3,000,000 shares of Series A Preferred Stock were converted into shares of Common Stock by Kaival Holdings, LLC, a related party. The conversion of 3,000,000 shares of Series A Preferred Stock, at a conversion rate of 8.33, equaled 25,000,000 shares of Common Stock. As a result, the authorized, preferred stock of the Company consists of 5,000,000 shares with a par value of $0.001 per share, with 0 shares of preferred stock issued or outstanding as of October 31, 2022.

Restricted Stock Unit Awards

During the fiscal year October 31, 2022:  

During the twelve months ended October 31, 2022, 123,256 shares of Common Stock were issued to seven employees of the Company pursuant to restricted stock unit (“RSU”) agreements, resulting in $172,379 of share-based compensation. Of the shares issued to employees, 44,720 shares were withheld by the Company to satisfy tax withholding obligations equal to $59,862.

On March 4, 2022, the Company’s Board approved the termination of the RSU agreements with the consent of the employees. At the time these agreements were terminated, there remained 1,564,166 unvested RSUs with approximately $4,457,875 of related unvested compensation. See Common Stock Compensation Transition Plan below for additional details.

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.

Stock Options

Summary of stock options information is as follows:

											Weighted
		Aggregate			Aggregate			Exercise			Average
		Number			Exercise Price			Price Range			Exercise Price
Outstanding, October 31, 2020			—		$	—		$	—	$	—
	Granted		150,000			3,074,010			9.12-28.68		20.49
	Exercised		—			—			—		—
	Cancelled, forfeited, or expired		—			—			—		—
Outstanding, October 31, 2021			150,000			3,074,010			9.12-28.68		20.49
	Granted		3,110,600			6,708,460			1.03-2.85		2.16
	Exercised		—			—			—		—
	Cancelled, forfeited, or expired		(58,335	)		(861,041	)		9.12-25.98		14.76
Outstanding, October 31, 2022			3,202,265		$	8,921,429		$	1.03-28.68		2.79
	Exercisable, October 31, 2022		2,460,270		$	7,386,509		$	1.03-28.68	$	3.00

During the fiscal year ended October 31, 2021, the Company recognized $1,773,947 related to outstanding stock options. On October 31, 2021, the Company had $1,314,055 of unrecognized expenses related to options. The weighted average remaining contractual life is approximately 9.43 years for stock options outstanding on October 31, 2022. The aggregate intrinsic value of these outstanding options as of October 31, 2021 was $0.

During fiscal year 2021, the Company granted options exercisable for up to 150,000 shares of Common Stock of which 15,000 fully vested on March 17, 2021, 7,500 fully vested on June 30, 2021, 41,667 fully vested on December 1, 2021, 17,500 vested on March 17, 2022, 8,750 vest on June 30, 2022, and 1,248 vest over the next year on March 17, 2023, and June 30, 2023. The options have exercise prices ranging from $9.12 to $28.68 per share. 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 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. On June 24, 2022, 33,333 of the stock options referenced above were canceled and a further 25,002 were cancelled. The unamortized expense when cancelled was $214,398.

During the year ended October 31, 2022, the Company recognized stock option expense of $6,043,312 related to outstanding stock options. On October 31, 2022, the Company had $1,716,795 of unrecognized expenses related to options. The weighted average remaining contractual life is approximately 9.52 years for stock options outstanding on October 31, 2022. As of October 31, 2022 and 2021, the   intrinsic value was $50,000 and $0, respectively, to the outstanding stock options.

On February 27, 2022, non-qualified stock options exercisable for up to 200,000 shares of Common Stock were awarded to two consultants of the Company. These stock options have a ten-year term from the grant date, with one-half of the shares vesting on the grant date and the remaining one-half of the shares vesting on the first anniversary of the grant date. The fair value of the options on the grant dates was $489,998 using a Black-Scholes option pricing model with the following assumptions: stock price $2.45 per share (based on the quoted trading price on the date of grant), a computed volatility of 288.93%, expected term of 10 years, and a risk-free interest rate of 1.83%.

On April 22, 2022, non-qualified stock options exercisable for up to 75,000 shares of Common Stock were awarded to one consultant of the Company. These stock options have a ten-year term from the grant date, with one-half of the shares vesting on June 30, 2022 and the remaining one-half of the shares vesting on October 31, 2022. The fair value of the options on the grant date was 106,499 using a Black-Scholes option pricing model with the following assumptions: stock price $1.42 per share (based on the quoted trading price on the date of grant), a computed volatility of 286.00%, expected term of 10 years, and a risk-free interest rate of 2.90%.

On May 18, 2022, non-qualified stock options exercisable for up to 500,000 shares of Common Stock were awarded to one consultant of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on December 1, 2022. The fair value of the options on the grant date was $514,997 using a Black-Scholes option pricing model with the following assumptions: stock price $1.03 per share (based on the quoted trading price on the date of grant), a computed volatility of 284.70%, expected term of 10 years, and a risk-free interest rate of 2.89%.

On August 1, 2022, non-qualified stock options exercisable for up to 25,000 shares of Common Stock were awarded to one employee of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on August 1, 2023. The fair value of the options on the grant date was $29,000 using a Black-Scholes option pricing model with the following assumptions: stock price $1.16 per share (based on the quoted trading price on the date of grant), a computed volatility of 281.14%, expected term of 10 years, and a risk-free interest rate of 2.60%.

On August 24, 2022, non-qualified stock options exercisable for up to 50,000 shares of Common Stock were awarded to one consultant of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on grant date. The fair value of the options on the grant date was $65,999 using a Black-Scholes option pricing model with the following assumptions: stock price $1.32 per share (based on the quoted trading price on the date of grant), a computed volatility of 279.81%, expected term of 10 years, and a risk-free interest rate of 3.11%.

On March 4, 2022, options exercisable for up to an aggregate of 1,385,600 shares of Common Stock were granted from this new stock option program to the executive officers and employees, as a result of the transition. The fair values of the options on the grant dates, as noted above, were approximately $3,948,948 using a Black-Scholes option pricing model with the following assumptions: stock price $2.85 per share (based on the quoted trading price on the date of grant), volatility of 294.55%, expected term of 10 years, and a risk-free interest rate range of 1.62%. The Company is amortizing the expense over the vesting terms of each option.   Please reference the Common Stock Compensation Transition Plan below.

On June 24, 2022, non-qualified stock options exercisable for up to 875,000 shares of Common Stock were awarded to two officers and three board members of the Company. These stock options have a ten-year term from the grant date, with 375,000 fully vested on June 24, 2022, and 500,000 vest over the next 2 years on June 23, 2023, and June 23, 2024. The fair value of the options on the grant dates was $1,504,990 using a Black-Scholes option pricing model with the following assumptions: stock price $1.72 per share (based on the quoted trading price on the date of grant), a computed volatility of 283.12%, expected term of 10 years, and a risk-free interest rate of 3.13%.

Common Stock Compensation Transition Plan

During the second quarter of fiscal year 2021 the Board and executive management began cost reduction discussions, including the reduction of non-cash items such as equity compensation awards. Those discussions stalled primarily due to the focus on other corporate events of significant value.

In the first and second fiscal quarters of 2022, the Board resumed   discussions, assessments, and evaluations regarding the equity compensation awarded to its officers and employees. The Board ultimately approved a stock option program for equity awards granted to its officers and employees. The Compensation Committee   finalized the program in February 2022 and approved it in March 2022. While evaluating and designing this program, the Compensation Committee did not utilize any aspects of value to the employees or other features. Therefore, the termination of the RSU program and the newly adopted stock option program were developed completely independent of each other and terminated and implemented, respectively, distinctly and simultaneously.   Management concluded under ASC 718 these transactions are a cancelation and replacement whereby total compensation cost measured at the date of a cancellation and replacement is the portion of the grant-date fair value of the original award for which the service is expected to be rendered at that date plus the incremental cost resulting from the cancellation and replacement. Incremental cost is measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date in which there was none since the fair value of the replacement award was less than the fair value of the canceled award.

The outcomes of this decision and the transition on March 4, 2022, resulting in: (i) the termination of the RSU program for all executive officers and employees, consisting of 1,564,166 unvested RSUs and (ii) the implementation a new stock option program for executive officers and employees. The stock options granted pursuant to the program will have ten-year terms from the grant date, with one-half of the shares vesting on the grant date and the remaining one-half of the shares vesting on the first anniversary of the grant date. Please reference the Stock Options disclosure above.

Warrants Shares

Summary Warrant Shares information is as follows:

		Aggregate			Aggregate			Exercise			Average
		Number			Exercise Price			Price Range			Exercise Price
Outstanding, October 31, 2020		—			$	—		$	—	$	—
	Granted		4,053,750			7,702,125			1.90		1.90
	Exercised		(879,828	)		(1,671,673	)		1.90		1.90
	Cancelled, forfeited, or expired		—			—			—		—
Outstanding, October 31, 2021			3,173,922			6,030,452			1.90		1.90
	Granted		—			—			—		—
	Exercised		(855,605	)		(1,625,650	)		1.90		1.90
	Cancelled, forfeited, or expired		—			—			—		—
Outstanding, October 31, 2022			2,318,317		$	4,404,802		$	1.90	$	1.90
	Exercisable, October 31, 2022		2,318,317		$	4,404,802		$	1.90	$	1.90

As part of the Company’s underwritten public offering in September 2021, 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 2026. Warrants for 879,828 shares of Common Stock were exercised during the fiscal year ended October 31, 2021 for proceeds of $1,665,113. Warrants for 855,605 shares of Common Stock were exercised during the fiscal year ended October 31, 2022, for proceeds of $1,625,650.

The weighted average remaining contractual life is approximately 3.92 years for stock warrants outstanding as of October 31, 2022. As of October 31, 2022, there was no intrinsic value of outstanding stock warrants. The weighted average remaining contractual life is approximately 4.92 years for stock warrants outstanding as of October 31, 2021. As of October 31, 2021, there was no intrinsic value of outstanding stock warrants.