REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS DEFICIT

12 Months Ended

Dec. 31, 2022

REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' DEFICIT

NOTE 6 – REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT:

a. In May 2021, the Company’s board of directors approved and declared a 100:1 stock split of common shares with a par value of $0.00001 and preferred shares, with a par value of $0.00001. In addition, the Company increased the number of authorized common shares from 3,900,000 to 12,870,000 and preferred shares from 40,000 to 170,000. In addition, on October 23, 2021, the Company’s Board of Directors approved a 39:1 stock split. As a result of the above splits, all shares, options and warrants exercisable into common shares and restricted stock units, exercise prices and income or loss per share amounts have been adjusted on a retroactive basis for all periods presented to reflect such stock splits.

On February 3, 2022, the Company amended its certificate of incorporation such that the total number of shares of all classes of capital stock authorized to be issued was increased to 65,000,000, with 5,000,000 shares designated as preferred stock with a par value of $0.00001, and 60,000,000 shares designated as common stock with a par value of $0.00001.

On February 8, 2022, the Company completed an IPO in which it sold 3,200,000 shares of common stock at $5.00 per share and received net proceeds of $13.6 million, after underwriting discounts and commissions, of $1.1 million and expenses of $1.8 million.

Additionally, on February 8, 2022, in connection with the closing of the IPO, 5,012,280 shares of Series A redeemable convertible preferred stock, respectively, automatically converted into an equal number of shares of common stock. There were no shares of convertible preferred stock outstanding as of December 31, 2022.

b. Redeemable Convertible Preferred Shares

During June and July 2021, the Company entered into an investment agreement with its founders and certain new investors to issue 128,520 redeemable convertible preferred shares (“Preferred Stock”) in a total amount of approximately $15.3 million in which $1.73 million were invested by related parties on the same terms as all investors in the Preferred Stock.

Conversion Rights —

Trigger Events — Upon either (a) the closing of a Deemed Liquidation Event, (b) an initial public offering the Corporation’s securities on a major public stock exchange (including, without limitation and for illustration purposes, the Nasdaq Stock Market’s National Market or the New York Stock Exchange) resulting in at least $15,000,000 of proceeds to the Corporation, or (c) the vote or written consent of the majority of the Preferred Stockholders (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time”), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate as calculated as follows — each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Original Issue Price ($119.0476) by the Conversion Price ($3.05 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization or event with respect to the applicable Preferred Stock). Such initial Conversion Price, and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as detailed in the Company’s Certified of Incorporation in effect at the time of conversion (as of December 31, 2021 the conversion is $3.05 per share) (ii) such shares may not be reissued by the Corporation.

During February 2022 the company completed the IPO and the convertible preferred stock were converted to common shares.

c. Rights of the Company’s common shares

The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. The Company’s common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.

In the event of our liquidation, dissolution or winding up, holders of the Company common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock.

As of December 31, 2022, no dividends have been declared.

d. Private Placement in Public Entity

On July 29, 2022, the Company closed a private placement offering (the “July Private Placement”), pursuant to the terms and conditions of a Securities Purchase Agreement (the “Agreement”), dated July 27, 2022. In connection with the July Private Placement, the Company issued 1,015,598 shares of common stock (the “Shares”), pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 909,091 shares of common stock and preferred investment options (the “Preferred Investment Options”) to purchase up to an aggregate of 1,924,689 shares of common stock. The purchase price of each Share and each Pre-Funded Warrant was the $8.25.  The purchaser received one Preferred Investment Option for no consideration, with each Share or Pre-Funded Warrant purchased. The aggregate net cash proceeds to the Company from the July Private Placement were approximately $14.3 million, after deducting placement agent fees and other offering expenses. The Pre-Funded Warrants had an exercise price of $0.001 per share, were exercisable on or after August 24, 2022, and are exercisable until the Pre-Funded Warrants were exercised in full. Pre-Funded Warrants totaling 909,091 were exercised during the year ended December 31, 2022, and as such the Company issued 909,091 shares of common stock on that date. The Preferred Investment Options are exercisable at any time on or after January 23, 2023 through January 29, 2026, at an exercise price of $9.65 per share, subject to certain adjustments as defined in the Agreement. The Company agreed to pay the placement agent a fee and management fee equal to 7.0% and 1.0%, respectively, of the aggregate gross proceeds from the July Private Placement. In addition, the Company issued warrants to the placement agent to purchase up to 115,481 shares of common stock. The placement agent warrants are in substantially the same form as the Preferred Investment Options, except that the exercise price is $10.31. The Preferred Investment Options, the Pre-Funded Warrants, and the placement agent warrants are collectively referred to as the “Private Placement Warrants”.

The Company evaluated the terms of the Private Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. Since the Company determined that the Private Placement Warrants were equity-classified, the Company recorded the proceeds from the July Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital. As of December 31, 2022, the outstanding Preferred Investment Options, and the placement agent warrants were not exercisable.

In connection with the July Private Placement, the Company entered into a Registration Rights Agreement with the certain purchasers defined therein, dated July 27, 2022 (the “July Registration Rights Agreement”). The July Registration Rights Agreement required the Company to file a registration statement covering the resale of all of the securities with the Securities and Exchange Commission (the “SEC”). The Company filed a registration statement on Form S-1 with the SEC on August 15, 2022. The registration statement on Form S-1 was declared effective on August 24, 2022.