NOTE 7 – TEMPORARY EQUITY, PREFERRED STOCK, COMMON STOCK, AND WARRANTS

Series A Redeemable Convertible Preferred Stock (“Series A Stock”)

As of both December 31, 2022 and 2021, the Company has 480 shares of Series A Stock issued and outstanding. The outstanding shares of Series A Stock are currently convertible at $3.33 per share of the Company’s common stock (the “Conversion Price”), which was reduced in 2022 pursuant to a price protection provision included in the Series A Certificate of Designation (“Series A Designation” as the Company began selling common stock and a warrant in an offering at $4.50 (see below). The Series A Designation requires an adjustment to the conversion price if a subsequent equity sale occurs at a price below the conversion rate. The Company recorded a deemed dividend within stockholders’ equity associated with the reduction in conversion price from $6.40 to $3.33 of $342,497 based on the incremental value to the Series A holders due to the conversion price reduction. This incremental value has also been presented on the consolidated statement of operations as an addition to the net loss available to common stockholders. The incremental value was determined by computing the additional shares the Series A holders would receive based on the conversion price reduction multiplied by the estimated fair value of common stock of $3.33, based on the sale of common stock in a recent offering.

The Series A Stock has no voting rights until converted to common stock and has a liquidation preference equal to the aggregate purchase price of $480,000 plus accrued dividends. The Series A Stock was in default as of December 31, 2022, but the holders of the Series A stock have agreed to stay any action pursuant to a conditional conversion agreement until the end of March 2023, and management is in discussions with these holders to extend those agreements. Each share of Series A Stock received warrants, all of which had expired as of the first quarter of 2021.

The Series A Stock has price protection provisions in the case that the Company issues any shares of stock not pursuant to an “Exempt Issuance” at a price below the Conversion Price. This price protection provision was triggered on September 30, 2022 when the Company sold common stock and a warrant for $4.50. Exempt Issuances include: (i) shares of common stock or common stock equivalents issued pursuant to the original merger of the company or any funding contemplated by that transaction; (ii) any common stock or convertible securities outstanding as of the date of closing; (iii) common stock or common stock equivalents issued in connection with strategic acquisitions; (iv) shares of common stock or equivalents issued to employees, directors or consultants pursuant to a plan, subject to limitations in amount and price; and (v) other similar transactions. The Certificate of Designation contains restrictive covenants not to incur certain debt, repurchase shares of common stock, pay dividends or enter into certain transactions with affiliates without consent of holders of 67% of the Series A Stock.

Management has determined that the Series A Stock is more akin to a debt security than equity primarily because it contains a mandatory 2-year redemption at the option of the holder, which only occurs if the Series A Stock is not converted to common stock. Therefore, management has presented the Series A Stock outside of permanent equity as mezzanine equity, which resides between liabilities and equity.

The Series A Stock carries a 6% per annum dividend calculated on the stated value of the stock and is cumulative and payable quarterly beginning July 1, 2016. These dividends are accrued at each reporting period and are added to the redemption value of the stock; however, since the Company as an accumulated deficit, the charge has been recognized in additional paid-in capital. The accrued dividends are $241,200 and $213,580 as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the stated value of the Series A and the accrued dividends was $721,200 and $693,580 which has been presented as mezzanine equity on the consolidated balance sheets, which resides between liabilities and stockholders’ equity.

Series B Convertible Preferred Stock (“Series B Stock”)

In December 2020, the Company filed an amendment to its Articles of Incorporation to authorize the issuance of up to 2,500 shares of Series B Stock, par value $0.001 per share, pursuant to a Certificate of Designation. The Series B Stock provides the holders a 10% annual paid-in-kind dividend, a liquidation preference equal to the purchase price of the shares ($1,000 per share) followed by the right to participate with the common stockholders in the instance of a liquidation or other exit event, and provide the holders the right to vote along with the common holders based on the common conversion amount of their holdings. In January 2021, the Company closed a private offering of its Series B Stock for $1,000 per share, raising a total of $2,500,000, inclusive of $156,000 in prior debt conversion and $23,000 of notes payable with directors converted to shares of Series B Stock and warrants. Between July 27 and August 24, 2021, 15 holders of an aggregate of 991 shares of Series B Stock converted their preferred shares into 163,134 shares of common stock, which included $53,061 of accrued dividends. As of December 31, 2022 and 2021, 1,509 shares of Series B Stock were issued and outstanding. The accrued dividends are $304,653 and $153,343 as of December 31, 2022 and 2021, respectively, which are presented on the consolidated balance sheets.

The Series B Stock was originally convertible into common stock at a ratio of $6.40 per share, subject to anti-dilution protections in the case of certain issuances of securities below that conversion price, and as a result of this price protection, the ratio was reduced to reduced to $6.19 per share based on the Series B Certificate of Designation (“Series B Designation”) which define the adjustment to the conversion ratio and incremental shares when the Company issues common stock at a price below the conversion ratio. Based on the Series B Designation, the conversion ratio was reduced to $6.19. The Company recorded a deemed dividend within stockholders’ equity associated with the reduction in conversion price from $6.40 to $6.19 of $30,938 based on the incremental value to the Series B holders due to the conversion price reduction. This incremental value has also been presented on the consolidated statement of operations as an addition to the net loss available to common stockholders. The incremental value was determined by computing the additional shares the Series B holders would receive based on the conversion price reduction multiplied by the estimated fair value of common stock of $3.33, based on the sale of common stock in a recent offering.

With respect to the Series B Preferred Stock, the Company recognized the incremental value associated with the downround of the conversion price due to the issuance of common stock at a lower price than Series B conversion price and associated adjustment of convertible shares as a deemed dividend charge of $30,938 within stockholders’ equity and as a reduction of net loss available to common stockholders on the consolidated statement of operations in 2022. The incremental value associated with the Series B Preferred stock was determined using an adjusted conversion price of $6.19 and an adjusted common stock conversion of 290,965 shares.

Series E-1 Preferred Stock (“Series E-1 Stock”)

On December 3, 2020, the Company filed an amendment to its Articles of Incorporation to authorize the issuance of up to 8,500 shares of Series E-1 Stock pursuant to a Certificate of Designation. The shares of Series E-1 Stock are incentive-based, vesting and forfeitable securities that provide the holders the right in the aggregate to receive an “earnout” equal to 20% of the total consideration received by the Company in the instance of a sale or sub-license of its core licensed radiopharmaceutical technology, or sale or merger of the Company, which is paid on a priority, senior basis. In addition, the holders of the Series E-1 Stock can convert their vested preferred stock at anytime or after an event resulting in an earnout payment, such as an acquisition of the Company, into an aggregate of 8.5 million common shares. The holders of the Series E-1 Stock have the right to vote along with the common stockholders based on the common conversion amount of their holdings, and have the right to nominate two members of the Board of Directors.

On December 30, 2020, 7,650 shares of Series E-1 Stock were issued to five individuals, including the Company’s Executive Chairman, CEO and General Counsel which vest starting in July 2021 through January 2023 and are forfeitable by the holders prior to vesting. In February 2021, the remaining 850 shares of Series E-1 Stock were issued to one newly-appointed director, vesting half in February 2022 and the balance in February 2023.

The Company computed the total grant date fair value of the Series E-1 Stock to be approximately $6,528,000 using an option pricing model and the following assumptions: (1) with respect to the shares granted in 2020: expected term of four years, dividend yield of -0-%, volatility of 96.12%, and a risk-free rate of .27%; and (2) with respect to the shares granted in 2021: expected term of four years, dividend yield of 0%, volatility of 90.78%, and a risk-free rate of 0.29%.

On December 6, 2021, the Company entered into an Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”) with all E-1 Stockholders pursuant to which all shares of Series E-1 Stock were exchanged into an aggregate of 720,986 shares of common stock of the Company. The fair value of the Series E-1 Stock was determined to be approximately $8.65 million at the time of exchange, and was based upon a valuation report provided to the Board by an independent third party expert, and approved for fairness by the independent chairman of the Compensation Committee. The common stock issued in the exchange was based on a value of $12.00 per share using a 30-day weighted average closing price calculation, and was issued proportionately to each holder based on their individual holdings of Series E-1 Stock. All shares of common stock issued to the shareholders are subject to the same vesting schedules as was originally provided in each shareholder’s Series E-1 Stock issuance agreement, meaning that such shares of common stock are forfeitable if certain conditions of employment are not met by the holders. As of December 31, 2022, approximately 717,924 common shares are fully vested and approximately 3,062 common shares are unvested, but have fully vested as of February 2023.

During the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation to employees and directors totaling $864,002, and $7,751,087, respectively related to the Series E-1 Stock, which is included in compensation and related expenses on the consolidated statements of operations. As of December 31, 2022, approximately $37,000 of unrecognized compensation remains which will be recognized by February 1, 2023.

Common Stock

In 2022, the Company effected a 40:1 reverse stock split and all share numbers herein have been adjusted for that change.

In 2022 and 2021, the Company issued 626,917 and 1,167,423 shares of common stock, respectively, as follows:

SCHEDULE OF ISSUED SHARES OF COMMON STOCK 

During the year ended December 31, 2022, the Company issued 5,469 shares of common stock in connection with $35,000 of debentures that were converted at a price of $6.40 per share.

During the year ended December 31, 2022, the Company issued 168,611 shares of common stock in connection with conversion of management salaries that were deferred totaling $606,998. The salary was converted at a price of $3.55 per share based on a weighted average of the market price of common stock and the offering price of common stock of $3.33 sold during 2022 (see below). The fair value of the shares issued upon settlement was equal to the amount owed for the management salaries; thefore, no gain or loss was recorded on the settlement and the accrued salaries were reclassed to stockholders’ equity. The shares of common stock issued in the settlement are restricted and shall be subject to forfeiture as follows: until such time that the Company successfully closes $5 million in a single fundraising (the “Trigger Event”), which may be completed in one or more closings over a period of 90 days, the shares of common stock may not be sold, transferred or otherwise disposed of by the holder. Upon the occurrence of the Trigger Event, the shares shall be fully vested. If the Trigger Event does not occur within 36 months of November 14, 2022, the shares of common stock shall be forfeited and returned to the Company. The shares issued with the settlement agreements have been presented as issued and outstanding on the statement of stockholders’ equity as of December 31, 2022.

During the year ended December 31, 2022, the Company issued 22,155 shares of common stock in connection with conversion of convertible notes in the amount of $132,932 that were converted at a $6.00 price per share. The Company recorded a gain on the conversion of the debt to equity of $54,281 which was recorded in other income and expense. The gain was calculated by the difference between the total of the principal and accrued interest outstanding the estimated fair value of the shares issued upon conversion of $3.55 based on a weighted average of the market price of common stock and the offering price of common stock of $3.33 sold during 2022 (see below).

During the year ended December 31, 2022, the Company issued 311,666 shares of common stock in connection with its common stock private placement which included a unit which consisted of one share of common stock and one common stock warrant at a price per unit of $4.50. During the year ended December 31, 2022, the Company received cash proceeds of $1,402,500 from the sale of units. The common stock sold in the unit was determined to have an estimated fair value of $3.33 based on the fair value of one warrant of $1.17 which was determing using a Black-scholes pricing model and the following assumptions: exercise price $6.00, expected term of 2 years, volatility of 91.2%, dividend rate of 0%, and discount rate of 4.22%. The implied stock price of $3.33 was then determined based on the $4.50 offering price for one unit.

During the year ended December 31, 2022, the Company issued 118,750 shares of common stock for services with an estimated fair value of $632,750 based on the market price of stock or estimated value of a common stock shares sold in the private placement offering (see above) on the date of issuance. The shares are recognized as expense over the related service period. During the year ended December 31, 2022, the Company recognized $482,161 of stock-based compensation of which $411,161 has been reflected in professional fees and $71,000 reflected in compensation and related expenses for shares issued to a former director and audit committee chair of the Company for such services. As of December 31, 2022, unearned deferred compensation related to these shares issued for services to be provided through May 2023 was $150,589.

During the year ended December 31, 2021, the Company issued 163,134 shares of common stock in connection with the conversion of Series B Stock with an original investment amount of $911,000 plus $53,061 in accrued dividends at the original stated conversion rate of $6.40. The Company also issued 36,250 shares of common stock to service providers during the period. The fair market value of the common stock was $517,500 which was recorded as stock compensation expense under Professional fees.

As of December 31, 2021, $125,007 of debentures and accrued expenses plus bridge notes with principal and accrued interest of $1,447,315 for an aggregate of $1,572,315 of obligations were converted into a total of 181,517 shares of common stock at a price of $6.40 per share. Further, $120,000 of Series A Stock was converted into 18,750 shares of common stock at a price of $6.40 per share. Due to the timing of the conversions and the Company’s stock price at that time of conversion, the Company recorded the following losses from liability conversions in the twelve months ended December 31, 2021: $744,505 from the conversion of Bridge Notes including accrued interest, and $390,068 from the conversion of a debenture and accrued expenses. A deemed dividend was recognized in the amount of $542,500 for the difference between the value of the common shares using market price on the date of conversion and the $120,000 stated value of the Series A Stock upon conversion into common stock which has been presented as an increase to the net loss available to common stockholders in the consolidated statement of operations. Further, on December 6, 2021, the Company entered into an Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”) with all E-1 Stockholders pursuant to which all shares of Series E-1 Stock were exchanged into an aggregate of 720,986 shares of common stock of the Company. As part of the exchange, the Company recognized stock-based compensation to employees and directors totaling $7,751,087 related to the Series E-1 Stock, which is included in compensation and related expenses on the consolidated statements of operations. Further, on October 15, 2021, 46,786 of the Series B Warrants were exercised for proceeds to the Company of $467,858, and the remaining Series B Warrants and the Service Warrants expired.

Warrants

In 2022, the Company effected a 40:1 reverse stock split and all warrant numbers herein have been adjusted for that change.

During the year ended December 31, 2022, the Company issued 311,666 warrants in connection with its private placement offering (the “Common Stock Warrants”).

During the year ended December 31, 2021, the Company issued 168,589 warrants in connection with its Series B Stock offering (the “Series B Warrants”), 18,750 warrants to a service provider (the “Service Warrants”), and 25,208 warrants in connection with its convertible note offering (the “Note Warrants”).

The terms of the Series B Warrants and Service Warrants were modified twice in 2021 by resolution of the Company’s board of directors, first to extend the termination date from July 8, 2021 to September 30, 2021 and then to extend the termination date to October 15, 2021. As part of the second modification, the exercise price of the Series B Warrants was reduced from $14.00 per share to $10.00 per share. As of October 15, 2021, 46,786 of the Series B Warrants were exercised for proceeds to the Company of $467,855, and the remaining Series B Warrants and the Service Warrants expired with the exception of 11,875 for one warrant holder that expired in January 2023.

A summary of warrant activity and related information during the years ended December 31, 2022 and 2021 is as follows:

 SCHEDULE OF WARRANT ACTIVITY

The aggregate intrinsic value of the warrants is the difference between the fair market value of the Company’s closing price of its common stock at each reporting date, less the exercise price multiplied by the number of warrants outstanding, which was $0 at December 31, 2022 and 2021.

The following is a summary of the outstanding common stock warrants as of December 31, 2022:

SCHEDULE OF STOCKHOLDERS' EQUITY NOTE, WARRANTS OR RIGHTS

With respect to the Series B Warrants, the Company recognized the incremental value associated with the two modifications for term extension and exercise price reduction as a deemed dividend charge of $850,214 within stockholders’ equity and as an increase of net loss available to common stockholders on the consolidated statement of operations in 2021. The incremental value associated with these warrant modifications was determined using a Black-Scholes pricing model using the original terms of the warrants and the modified terms and the following assumptions: expected term of 0.0- .25 years, dividend yield of 0%, volatility of 6.5-183.2%, and a risk-free rate of 0.04%-0.07%.

With respect to the Series B Warrants, the Company recognized the incremental value associated with the two modifications for term extension and exercise price reduction as a deemed dividend charge of $41,225 within stockholders’ equity and as a reduction of net loss available to common stockholders on the consolidated statement of operations in 2022. The incremental value associated with these warrant modifications was determined using a Black-Scholes pricing model using the original terms of the warrants and the modified terms and the following assumptions: expected term of .50 years, dividend yield of 0%, volatility of 224.2%%, and a risk-free rate of 0.51%.

With respect to the Service Warrants, the Company computed the total grant date fair value of the warrants to be approximately $405,000 using a Black-Scholes option pricing model and the following assumptions: expected term of 0.5 years, dividend yield of -0%-, volatility of 129.81%, and a risk-free rate of .08%. The value of these warrants was recognized as stock-based compensation expense on the date of grant and is included in professional fees on the consolidated statement of operations for year ended December 31, 2021, as the warrants were fully earned upon issuance. On June 17, 2021 and September 22, 2021, the term of these warrants was extended, resulting in incremental compensation expense of $109,208 that has been included in professional fees on the consolidated statement of operations for the year ended December 31, 2021. The incremental value associated with these modified warrants was determined using a Black-Scholes pricing model using the original terms of the warrants and the modified terms and the following assumptions: expected term of 0.00 – 0.04 years, dividend yield of 0%, volatility of 106.5% -183.2%, and a risk-free rate of 0.05-0.07%. As of December 31, 2022 and 2021, there were no service warrants outstanding as they were fully expired as of December 31, 2021.

With respect to the Note Warrants, the Company computed the total grant dates fair value of the warrants to be $72,600 using a Black-Scholes option pricing model and the following assumptions: expected term of 0.5 years, dividend yield of 0%, volatility of 175.7% to 184.4% and a risk-free rate of .11% to .14%. The value of these warrants was recorded against the convertible notes as a debt discount using the relative fair value method and included in additional paid- in capital.

With respect to the Common Stock Warrants, the Company computed the total grant date fair value of the warrants to be $364,651 using a Black-Scholes option pricing model and the following assumptions: expected term of 2 years, dividend yield of 0%, volatility of 91.2% and a risk-free rate of 4.22% The value of these warrants was recorded using the relative fair value method and included in additional paid- in capital.