Note 7 - Equity Transactions

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Equity [Text Block]

(7) EQUITY TRANSACTIONS:

On March 3, 2023, following the approval of the Company’s stockholders at a special meeting, the Company’s Articles of Incorporation were amended to increase the number of authorized shares of common stock from 20,000,000 to 50,000,000.

The Company accrues stock compensation expense over the period earned for employees and board members. Stock compensation expense for board members is included in “Board of Directors fees and costs” on our condensed consolidated statement of operations, and stock compensation expense for officers and employees that are not board members is included in “Personnel” on our condensed consolidated statement of operations. In the three and nine month ended September 30, 2023, the Company recognized compensation expense of $75,460 and $185,635 to board members, in addition to $30,750 of accrued stock compensation as of December 31, 2022, and issued 55,485 shares to board members in the three months ended September 30, 2023. In the three and nine months ended September 30, 2022, the Company issued 16,017 and 39,083 shares to board members with a value of $30,752 and $102,512, respectively, at the time of issuance. Compensation expense for the 11,327 shares issued to board members with a value of $41,004 at the time of issuance had been accrued as of December 31, 2021. The Company did not issue shares to employees in the three months ended September 30, 2022, and issued 7,500 shares with a value of $15,750 to an employee in the nine months ended September 30, 2022. The Company issued 5,000 shares with a value of $10,500 to a member of the scientific advisory board in the nine months ended September 30, 2022. The Company expensed $10,500 in board stock compensation expense for the nine months ended September, 30, 2022.

On January 3, 2023, the Company sold to an institutional investor in a registered direct offering 930,000 shares of common stock at a purchase price per share of $1.61, and prefunded warrants to purchase up to an aggregate of 1,678,696 shares of common stock at a purchase price of $1.61 per pre-funded warrant. The pre-funded warrants have an exercise price of $0.0001 per share and remain exercisable until exercised in full. In a concurrent private placement, the Company also issued to the investor Series A-1 warrants to purchase up to 2,608,696 shares of common stock at an exercise price of $1.36 per share, exercisable for a period of five years from the date of issuance, and Series A-2 warrants to purchase up to 2,608,696 shares of common stock at an exercise price of $1.36 per share, exercisable for a period of three years from the date of issuance. The net proceeds from the registered direct offering were approximately $3.7 million after deducting fees due to the placement agent in the offering. A holder of pre-funded warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise. A holder of pre-funded warrants may increase or decrease this percentage, but not in excess of 9.99%, by providing at least 61 days’ prior notice to the Company. A holder of the Series A-1 and Series A-2 warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise, and may increase or decrease this percentage, but not in excess of 9.99%, by providing at least 61 days’ prior notice to the Company.

(7) EQUITY TRANSACTIONS: (CONTINUED)

The Company classified the fair value of the warrants as equity because they are indexed to its own stock and meet the conditions necessary for equity classification in accordance with the guidance in ASC Subtopic 815-40 on derivatives and hedging.

H.C. Wainwright & Co., LLC acted as placement agent to the Company in connection with the registered direct offering and concurrent private placement and was paid a cash fee equal to 7.5% of the gross proceeds of the offering, a management fee equal to 1.0% of the gross proceeds of the offering, and was reimbursed by the Company for its non-accountable expenses in the amount of $35,000, for fees and expenses of its legal counsel, for other out-of-pocket expenses in the amount of $50,000, and for its clearing expenses in the amount of $15,950. The Company also issued to designees of the placement agent five-year warrants to purchase an aggregate of 156,522 shares of common stock at an exercise price of $2.0125 per share.

On January 25, 2023, the investor exercised a portion of its pre-funded warrants and acquired 400,696 shares of common stock for an aggregate exercise price of $40, and on February 27, 2023, the investor exercised an additional portion of its pre-funded warrants and acquired 741,000 shares of common stock for an aggregate exercise price of $74. On April 3, 2023, the investor exercised the remaining balance of pre-funded warrants and acquired 537,000 shares of common stock for an aggregate exercise price of $54.

On April 20, 2023, the Company, completed a private placement of its securities priced at-the-market under the rules of The Nasdaq Stock Market, Inc., to a group of accredited investors that included several directors of the Company and members of management and their affiliates. Investors in the private placement purchased 1,562,883 shares of common and were issued warrants to purchase 1,562,883 shares of common. The purchase price for one share of common stock and a Warrant to purchase one share of common stock was $0.835. The Warrants have an exercise price of $0.71 and have a term of seven years. The gross proceeds of the private placement were $1,305,000.

On May 2, 2023, the Company completed the private placement of its securities to Rafael Holdings, Inc. (“Rafael Holdings”), a Delaware corporation, in which it purchased 2,514,970 shares of common stock, and a warrant to purchase an additional 2,514,970 shares of common stock for an aggregate purchase price of $2,100,000. The Warrant has an exercise price of $0.71 per share, and is exercisable for the seven-year period starting August 1, 2023, the date Company obtained the approval of its shareholders to the exercise of the warrant in accordance with Listing Rules 5635(b) and 5635(d) of The Nasdaq Stock Market, Inc. In connection with the closing of the transaction, the Company (i) entered into a Registration Rights Agreement with Rafael Holdings requiring the Company to file a registration statement with the Securities and Exchange Commission to register the resale of the shares and shares of common stock underlying the Warrants, upon the request of Rafael Holdings, and (ii) appointed William Conkling, the CEO of Rafael Holdings, to the Company’s Board of Directors.

On August 1, 2023, the Company completed an additional private placement of its securities to Rafael Holdings pursuant to a securities purchase agreement between the Company and Rafael Holdings dated June 1, 2023. Rafael Holdings purchased 4,000,000 shares of common stock and a seven-year warrant to purchase an additional 4,000,000 shares of common stock at a price of $1.25 per share, for an aggregate purchase price of $5,000,000. The issuance of the shares and warrant to Rafael Holdings was approved by the Company’s shareholders at the annual meeting held on August 1, 2023, in accordance with Listing Rules 5635(b) and 5635(d) of The Nasdaq Stock Market, Inc.

As of September 30, 2023, the Company had warrants outstanding to purchase 13,733,117 shares of common stock at exercise prices ranging from $0.71 to $65.00 per share that expire at various dates through 2030. In addition, there are currently outstanding seven-year warrants to (i) 1,641 Units sold in our February 2017 private placement at an exercise price of $35.00 per Unit, and (ii) 2,400 Units sold in our October 2017 private placement at an exercise price of $25.00 per Unit.  The exercise in full of these warrants to purchase units (including exercise of the warrants underlying these warrants) would result in the issuance of 8,082 additional shares of our common stock at an aggregate exercise price of $234,861.