Stockholders’ Equity

6 Months Ended

Apr. 30, 2023

Equity [Abstract]

Stockholders’ Equity

Note 5 – Stockholders’ Equity

Common Stock

No shares of Common Stock were issued during the three and six months ended April 30, 2023.

Preferred Stock 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. 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.

Stock Options

Summary of stock options information is as follows:

									Weighted
	Aggregate			Aggregate			Exercise Price		Average
	Number			Exercise Price			Range		Exercise Price
Outstanding, October 31, 2022		3,202,265			8,921,419			1.03-28.68		2.79
Granted		5,275,000			4,714,825			0.61-0.99		0.89
Exercised		—			—			—		—
Cancelled, forfeited, or expired		(75,000	)		(154,500	)		2.06		2.06
Outstanding, April 30, 2023		8,402,265		$	13,481,744		$	0.61-28.69	$	1.60
Exercisable, April 30, 2023		3,477,265		$	8,580,894		$	0.99-28.69	$	2.47

During the three months ended April 30, 2023, and 2022, the Company recognized $1,352,938 and $2,616,192, respectively of stock option expense related to outstanding stock options. During the six months ended April 30, 2023, and 2022, the Company recognized $2,788,725 and $2,824,892, respectively of stock option expense related to outstanding stock options. On April 30, 2023, the Company had $3,643,178 of unrecognized expenses related to options. The weighted average remaining contractual life is approximately 9.41 years for stock options outstanding on April 30, 2023. The aggregate intrinsic value of these outstanding options as of April 30, 2023, was $0. Compensation expense related to performance-based options is recognized on a straight-line basis over the requisite service period, provided that it is probable that performance conditions will be achieved, with probability assessed on a quarterly basis and any changes in expectations recognized as an adjustment to earnings in the period of the change. Compensation cost is not recognized for service- and performance-based awards that do not vest because service or performance conditions are not satisfied, and any previously recognized compensation cost is reversed. If vesting occurs prior to the end of the requisite service period, expense is accelerated and fully recognized through the vesting date.

On November 9, 2022, non-qualified stock options exercisable for up to 250,000 shares of Common Stock were awarded to one supplier of the Company. These stock options have a ten-year term from the grant date, with the shares fully vested on the issue date. The fair value of the options on the grant date was $246,747 using a Black-Scholes option pricing model with the following assumptions: stock price $0.9869 per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68%, expected term of 10 years, and a risk-free interest rate of 4.12%.

On November 9, 2022, non-qualified stock options exercisable for up to 3,000,000 shares of Common Stock were awarded to one supplier of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue and profit margin targets up to $180,000,000 in total net revenues over a period of 3 years. The fair value of the options on the grant date was $2,960,968 using a Black-Scholes option pricing model with the following assumptions: stock price $0.9869 per share (based on the quoted trading price on the date of grant), a computed volatility of 275.68%, expected term of 10 years, and a risk-free interest rate of 4.12%. Management determined the performance conditions were deemed probable on the grant date.

On February 6, 2023, non-qualified stock options exercisable for up to 150,000 shares of Common Stock were awarded to five employees of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $109,499 using a Black-Scholes option pricing model with the following assumptions: stock price $0.73 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10 years, and a risk-free interest rate of 3.63%.

On February 6, 2023, non-qualified stock options exercisable for up to 1,000,000 shares of Common Stock were awarded to two senior executives of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $729,988 using a Black-Scholes option pricing model with the following assumptions: stock price $0.73 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10 years, and a risk-free interest rate of 3.63%.

On February 6, 2023, non-qualified stock options exercisable for up to 375,000 shares of Common Stock were awarded to three independent board members of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on February 6, 2024. The fair value of the options on the grant date was $273,747 using a Black-Scholes option pricing model with the following assumptions: stock price $0.73 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10 years, and a risk-free interest rate of 3.63%.

On February 6, 2023, non-qualified stock options exercisable for up to 200,000 shares of Common Stock were awarded to one consultant acting as a sales broker for the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting based on the achievement of certain net revenue targets up to $100,000,000 in total net revenues over time to be generated from certain customers as listed in the sales broker agreement. The fair value of the options on the grant date was $145,998 using a Black-Scholes option pricing model with the following assumptions: stock price $0.73 per share (based on the quoted trading price on the date of grant), a computed volatility of 270.98%, expected term of 10 years, and a risk-free interest rate of 3.63%. Management determined the performance conditions were deemed not probable and as such no expense was recognized on these awards for the period ended April 30, 2023.

On March 3, 2023, non-qualified stock options exercisable for up to 50,000 shares of Common Stock were awarded to one interim senior executive of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on June 30, 2023. The fair value of the options on the grant date was $30,650 using a Black-Scholes option pricing model with the following assumptions: stock price $0.61 per share (based on the quoted trading price on the date of grant), a computed volatility of 286.91%, expected term of 10 years, and a risk-free interest rate of 3.97%.

On March 19, 2023, non-qualified stock options exercisable for up to 250,000 shares of Common Stock were awarded to two independent board members of the Company. These stock options have a ten-year term from the grant date, with the shares fully vesting on March 19, 2024. The fair value of the options on the grant date was $217,498 using a Black-Scholes option pricing model with the following assumptions: stock price $0.87 per share (based on the quoted trading price on the date of grant), a computed volatility of 286.15%, expected term of 10 years, and a risk-free interest rate of 3.47%.

Warrants

Warrant information as of the periods indicated is as follows:

							Weighted
	Aggregate		Aggregate		Exercise Price		Average
	Number		Exercise Price		Range		Exercise Price
Outstanding, October 31, 2022		2,318,317		4,404,802		1.90		1.90
Granted		—		—		—		—
Exercised		—		—		—		—
Cancelled, forfeited, or expired		—		—		—		—
Outstanding, April 30, 2023		2,318,317	$	4,404,802	$	1.90	$	1.90
Exercisable, April 30, 2023		2,318,317	$	4,404,802	$	1.90	$	1.90

The weighted average remaining contractual life is approximately 3.42 years for Common Stock warrants outstanding as of April 30, 2023. As of April 30, 2023, there was no intrinsic value of outstanding stock warrants.