| CAPITALIZATION |
NOTE
6: CAPITALIZATION
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a. |
As
of December 31, 2025 and December 31, 2024, the Company had 200,000,000 shares
of common stock authorized and 2,167,324 and 428,799 shares
issued and outstanding, respectively. As of December 31, 2025 and December 31, 2024, the Company had 5,000,000 shares
of preferred stock authorized and 300,000 shares
of Series AA Preferred Stock and 700,000 shares
of Series AAA Preferred Stock issued and outstanding as of December 31, 2025. There were no shares
of preferred stock issued or outstanding as of December 31, 2024. As of December 31, 2025 and December 31, 2024, there were warrants
outstanding to purchase an aggregate of 1,788,729 and 238,423 shares
of common stock, respectively. As of December 31, 2025, these warrants were exercisable at a weighted average price of $28.72 and
their weighted average remaining contractual term was 4.3 years.
On February 11, 2026, the Company reduced the exercise of warrants to purchase an aggregate of 1,676,425 shares
of the Company’s common stock that were issued in financing transactions during 2024 and 2025 to $1.75 per
share. For more details see Note 11. Following this adjustment, the total outstanding warrants at December
31, 2025 are exercisable at a weighted
average price of $19.57. |
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b. |
On
January 16, 2025, the Company completed a private placement offering pursuant to which the Company sold and issued to certain
investors an aggregate of 75,335
shares of common stock and warrants to purchase 75,335
shares of common stock (the “January 2025 Warrants”). The shares and January 2025 Warrants were sold on a combined basis
for consideration of $29.82
for one share and one January 2025 Warrant. The January 2025 Warrants are immediately exercisable at an exercise price of $26.32
per share and expire five
years from the date of issuance. The total net proceeds were approximately $2.0 million,
after deducting placement agent and other offering expenses in the amount of approximately $0.25
million. In February 2025, the Company filed a registration statement to register the resale by the investors of the shares of
common stock and shares of common stock issuable upon exercise of the January 2025 Warrants. The registration statement was declared
effective on February 11, 2025. In addition, in connection with the January 2025 Offering, the Company issued to the placement agent
and its designees warrants to purchase an aggregate of 5,268
shares of common stock at an exercise price of $32.90.
The placement agent warrants are exercisable six months from the date of issuance and expire on the fifth anniversary of the issue
date. The fair value of a warrant to purchase one share of common stock that was issued to the placement agent was $20.72. On February 11, 2026, the Company reduced the exercise price of the January 2025 Warrants and the placement
agent warrants to $1.75 per share. For more details see Note 11. |
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c. |
On
February 12, 2025, the Company entered into the SEPA with Yorkville, which provides that, upon the terms and subject to the restrictions
and satisfaction of the conditions in the SEPA, Yorkville is committed to purchase up to an aggregate of $20.0 million of the Company’s
shares of common stock over a 36-month period. At the Company’s option, the shares of common stock would be purchased by Yorkville
from time to time at a price equal to 97% of the lowest of the three daily VWAPs during a three consecutive trading day period commencing
on the date that the Company, subject to certain limitations, delivers a notice to Yorkville that the Company is committing Yorkville
to purchase such shares of common stock. The Company may also specify a certain minimum acceptable price per share in each advance.
The Company will control the timing and amount of sales of the Company’s shares to Yorkville. As consideration for Yorkville’s
irrevocable commitment to purchase shares of the Company’s common stock upon the terms of and subject to restrictions and satisfaction
of the conditions set forth in the SEPA, upon execution of the SEPA, the Company issued to Yorkville 10,927 shares of common stock
as commitment shares. Under the applicable Nasdaq Rules and pursuant to the SEPA, in no event may the Company issue or sell to Yorkville
more than 100,830 shares of common stock (the “Exchange Cap”), which is 19.99% of the shares of common stock outstanding
immediately prior to the execution of the SEPA, unless (i) the Company obtains stockholder approval to issue shares of common stock
in excess of the Exchange Cap, or (ii) the average price of all applicable sales of common stock under the SEPA equals or exceeds
$22.882 per share (which represents the lower of (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) on the trading
day immediately preceding the effective date or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected
on Nasdaq.com) for the five trading days immediately preceding the effective date). On February 12, 2025, the Company filed a Form
S-1 covering the resale of up to 357,142 shares of common stock comprised of (i) 10,927 commitment shares, and (ii) up to 346,215
shares of common stock reserved for issuance and sale to Yorkville under the SEPA. The Form S-1 was declared effective on February
13, 2025. During 2025, the Company sold and issued 89,902 shares of common stock under the SEPA for aggregate net proceeds of approximately
$1.74 million, after deducting offering expenses in the amount of approximately $0.1 million. Effective March 11, 2026, the Company terminated the SEPA with Yorkville,
and the SEPA is no longer in effect. |
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d. |
On
June 1, 2022, the Company entered into an ATM Agreement which was amended on September 1, 2022 with a sales agent, pursuant to which
the Company may offer and sell, from time to time through the sales agent, shares of the Company’s common stock. The issuance
and sale of common stock by the Company under the ATM Agreement is being made pursuant to the Company’s effective “shelf”
registration statement on Form S-3 filed with the SEC on August 13, 2025 and declared effective on August 20, 2025. During 2025 the
Company sold 520,000 shares of the Company’s common stock for aggregate net proceeds of approximately $2.25 million, after
deducting issuance expenses in the amount of approximately $0.1 million. The Company’s ability to issue shares under the shelf
registration statement on Form S-3 is limited by General Instruction I.B.6 to Form S-3. |
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e. |
On
December 22, 2025, the Company entered the Purchase Agreement with David E.
Lazar pursuant to which the Company agreed to issue and sell an aggregate of 1,000,000 shares of convertible
preferred stock, consisting of (i) 300,000 shares of Series AA Convertible Preferred Stock
and (ii) 700,000 shares of Series AAA Convertible Preferred Stock, at a purchase price of $6.00 per share for gross proceeds of $6.0
million. The transaction closed on December 23, 2025. Each share of Series AA Preferred Stock is convertible, subject to stockholder
approval, into 20 shares of the Company’s common stock, par value $0.01 per share. Each share of Series AAA Preferred Stock
is convertible into 150 shares of Common Stock. Upon full conversion, the Preferred Stock would convert into an aggregate of 111,000,000
shares of Common Stock. Conversion of the Preferred Stock was subject to compliance with Nasdaq Listing Rule 5635, which requires
stockholder approval for issuances of Common Stock in excess of 19.99% of the Company’s outstanding shares. Accordingly, the
Company agreed to seek stockholder approval for the issuance of the full number of shares of common stock underlying the Preferred
Stock. Conversion approval was obtained subsequent to December 31, 2025, on February 26, 2026. See additional discussion in Note
11. The Company determined that the Preferred Stock was not within the scope of ASC 480 as it did
not contain any embedded derivatives required to be bifurcated from the Preferred Stock therefore these instruments were equity classified
within permanent equity. |
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f. |
On December 23, 2025, the Company filed a Series AA Certificate of Designation
and Series AAA Certificate of Designation with the Secretary of State of Delaware designating the rights, preferences and limitations
of each of the shares of the Series AA Preferred Stock and the Series AAA Preferred Stock (collectively, the “Preferred Stock”),
respectively. |
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Following stockholder approval, each share of
Series AA Preferred Stock is convertible into 20 shares of the Company’s Common Stock, and each share of Series AAA Preferred Stock
is convertible into 150 shares of Common Stock. The Preferred Stock shall rank:
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senior
to all of the common stock; |
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senior
to any class or series of capital stock of the Company hereafter created specifically ranking by its terms junior to the Preferred
Stock (“Junior Securities”); and |
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on
parity with each other (i.e. Series AA Preferred Stock shall rank pari passu with Series AAA Preferred Stock) |
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in each case, as to distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntarily or involuntarily (each, a “Dissolution”).
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In the event of a Dissolution, holders of the Preferred
Stock will be entitled to receive, before any distributions to the holders of the Common Stock and the holders of junior securities, an
amount per share of Preferred Stock equal to the greater of (i) $6.00 (subject to adjustment in the event of any stock split, combination
or reclassification), plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all
shares of the Preferred Stock been converted into common stock (without regard to any restrictions on conversion) immediately prior to
such Dissolution. Shares of Preferred Stock will be entitled to receive dividends equal to (on an as-if-converted-to-common stock basis),
and in the same form and manner as, dividends actually paid on shares of common stock. For the avoidance of any doubt, neither a change
in control of the Company, the merger or consolidation of the Company with or into any other entity, nor the sale, lease, exchange or
other disposition of all or substantially all of the Company’s assets shall, in and of itself, be deemed to constitute a Dissolution.
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Shares of Preferred Stock will generally have no voting
rights, except to the extent provided by applicable law, and except that the consent of the holders of a majority of the outstanding shares
of the Preferred Stock will be required to (i) alter, repeal or change the powers, preferences or rights of the Preferred Stock or alter
or amend the Certificate of Designations so as to adversely affect the Preferred Stock, (ii) supplement, amend, restate, repeal, or waive
any provision of the Company’s amended and restated certificate of incorporation or bylaws, or file any certificate of amendment,
certificate of designation, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely
alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Preferred Stock, regardless
of whether any of the foregoing actions shall be by means of amendment to the Company’s amended and restated certificate of incorporation
or by merger, consolidation, recapitalization, reclassification, conversion or otherwise, (iii) increase or decrease (other than by conversion)
the number of authorized shares of the Preferred Stock; or (iv) enter into any agreement with respect to any of the foregoing.
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