NOTE 5 – STOCKHOLDERS’ EQUITY

Authorized Stock

The holders of the Company’s Common Stock are entitled to one vote per share. The holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. However, the current policy of the Board of Directors is to retain earnings, if any, for the operation and expansion of the business. Upon liquidation, dissolution or winding-up of the Company, the holders of Common Stock are entitled to share ratably in all assets of the Company that are legally available for distribution, after payment of or provision for all liabilities and the liquidation preference of any outstanding Series A, and Series B convertible preferred stock. The holders of Common Stock have no preemptive, subscription, redemption, or conversion rights.

Common Stock

On August 18, 2025, the Company’s Board of Directors approved, and in September 2025 a majority of the Company’s common stockholders approved by written consent, a reverse stock split of the Company’s common stock at a ratio of one-for-5.92 (1:5.92) shares (the “Reverse Split”) which became effective on September 29, 2025.

The Reverse Split was implemented to meet the Nasdaq Capital Market minimum per-share price requirement of $8.00 for qualification in connection with the Company’s planned direct listing. The action was intended to align the valuation of the Company’s common stock to satisfy this listing requirement following the conversion of all outstanding securities into common stock.

Upon effectiveness, every 5.92 shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share. The Reverse Split affected all issued and outstanding shares of common stock, as well as treasury stock, shares underlying stock options, warrants, and other convertible instruments, proportionally. No fractional shares were issued as a result of the Reverse Split; any fractional shares were rounded up to the nearest whole share.

All share and per-share amounts in the accompanying condensed financial statements and related notes have been retroactively adjusted to reflect the Reverse Split for all periods presented. The number of authorized shares and the par values of the common stock and preferred stock were not adjusted as a result of the Reverse Split.

Reserved Shares

As of March 31, 2026, the Company has reserved the following shares of common stock for future issuance:

Preferred Stock

The Company is authorized to issue a total of 60,500,000 shares of preferred stock of which 8,000,000 shares have been designated as Series A convertible preferred stock (“Series A Convertible Preferred”), and 52,500,000 shares have been designated as Series B convertible preferred stock (“Series B Convertible Preferred”).

Series A Convertible Preferred Shares are convertible to Common shares on a 1:5.92 ratio and are mandatorily converted upon an initial public offering or listing on a recognized stock exchange. Series A Convertible Preferred Shares do not accrue dividends and include anti-dilution protection.

Series B Convertible Preferred Shares accrue dividends at the rate per annum of 8% (of the Original Issue Price on a non-compounding basis) (the “Series B Accruing Dividends”) and includes anti-dilution protection. The Series B Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The Series B Convertible Preferred Shares also participate, on an as converted basis, in any other dividends paid to the holders Series A Convertible Preferred Stock or common stock; however, no dividends have been declared or paid to any stockholders to date. All outstanding Series B Convertible Preferred Shares are automatically converted into shares of the Company’s common stock at the then-applicable conversion ratios (i) immediately prior to the closing of an underwritten public offering of Common Shares for aggregate gross proceeds of not less than $5 million and a pre-money valuation that values the Series B Convertible Shares not below their accumulated Liquidation Preference, or (ii) upon the vote of a Series B Convertible Preferred Share Majority, as defined. Upon any conversion of the Series B Convertible Preferred Shares into the Company’s common stock, all accrued and unpaid Series B Accruing Dividends are likewise payable in shares of the Company’s common stock. The conversion ratio for the Series B Convertible Preferred Shares is subject to a broad-based weighted-average adjustment provision in the event of an issuance of common stock below the Original Issue Price, subject to certain customary exceptions.

Total accumulated dividends for Series B Convertible Preferred Shares as of March 31, 2026 are approximately $10.5 million and have not been declared by the board of directors.

Subsequent to March 31, 2026, on April 23, 2026, in connection with the Company’s listing on the Nasdaq Capital Market, all outstanding shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock automatically converted into 1,113,224 and 4,022,206 shares, respectively, of the Company’s common stock in accordance with their respective terms. In addition, all accumulated and unpaid Series B Accruing Dividends totaling approximately $10.6 million, including dividends accrued through the conversion date, were settled through the issuance of 1,704,242 shares of the Company’s common stock.

On January 31, 2026, the Company entered into a Securities Purchase Agreement (the “SPA”) with an investor for the issuance and sale of 937,500 shares of newly designated Series C Convertible Preferred Stock (the “Series C Preferred”) with an aggregate stated value of $9.375 million. The Series C Preferred was issued at a 20% original issue discount for aggregate gross proceeds of $7.5 million. The financing closed on April 21, 2026, resulting in net proceeds to the Company of approximately $6.8 million after payment of placement agent fees and other offering-related expenses. Each share of Series C Preferred has a stated value of $10.00 per share.

Each share of Series C Preferred has a stated value of $10.00 per share and is convertible, at the option of the holder, at any time and from time to time, into shares of the Company’s common stock. The conversion price is equal to the lesser of (i) $10.00 per share (the “Fixed Price”) or (ii) 80% of the lowest closing sale price of the Company’s common stock during the five consecutive trading days immediately preceding the applicable conversion date (the “Variable Price”); provided, however, that the Variable Price shall not be less than $1.00 per share (the “Floor Price”). The conversion price is subject to customary adjustments for stock splits, stock dividends, recapitalizations and similar transactions, as well as full-ratchet anti-dilution adjustments in the event the Company issues common stock at a price below the Fixed Price, subject to limitations that the Fixed Price will not exceed $10.00, and the Floor Price will not exceed $1.00.

Conversion of the Series C Preferred is subject to a beneficial ownership limitation prohibiting conversion to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock.

Holders of the Series C Preferred are entitled to receive cumulative dividends at the rate of $1.20 per share per annum (12% of the $10.00 stated value), payable monthly in cash or in kind, when and if declared by the Company’s Board of Directors and from legally available funds. Dividends commence six months following the date on which the Company’s common stock began trading on the Nasdaq Capital Market and accrue only on shares of Series C Preferred that remain outstanding and unconverted.

In the event of any liquidation, dissolution or winding up of the Company, or a Deemed Liquidation Event (as defined in the Certificate of Designation), holders of the Series C Preferred are entitled to receive, prior to any distribution to holders of common stock, an amount per share equal to the greater of (i) the stated value of $10.00 per share or (ii) the amount that would have been payable had the Series C Preferred been converted into common stock immediately prior to such event.

The Company evaluated the accounting treatment of the Series C Preferred Stock pursuant to the guidance in ASC 480, Distinguishing Liabilities from Equity, ASC 480-10-S99 related to SEC guidance on temporary equity classification, and ASC 815, Derivatives and Hedging, including the guidance on embedded derivatives under ASC 815-15. The Company concluded that the Series C Preferred Stock should be classified within permanent equity because the Series C Preferred Stock is not mandatorily redeemable, and the occurrence of any deemed liquidation events is within the Company’s control. In addition, the Company evaluated the embedded conversion, redemption and other features of the Series C Preferred Stock, including the variable conversion feature and most favored nation provisions, and determined that such features do not require bifurcation as embedded derivatives under ASC 815-15 because the features do not meet the definition of a derivative instrument pursuant to ASC 815-10. Accordingly, the Series C Preferred Stock will be recorded within stockholders’ equity, net of issuance costs.

In connection with the financing, the Company entered into a Registration Rights Agreement pursuant to which the Company agreed to file a registration statement covering the resale of the shares of common stock issuable upon conversion of the Series C Preferred. Subsequent to March 31, 2026, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission registering 9,375,000 shares of common stock issuable upon conversion of the Series C Preferred.

The SPA contains customary representations, warranties, covenants and closing conditions. In addition, lock-up agreements were entered into by (i) the Company’s officers, directors and holders of 10% or more of the Company’s outstanding common stock and (ii) all beneficial owners of more than 5% of the Company’s unregistered common stock. Under these agreements, such holders agreed not to sell or otherwise transfer their shares for a period commencing on the Company’s Nasdaq listing date and ending on the earlier of (a) six months following the effectiveness of the registration statement or (b) the date of full conversion of all outstanding Series C Preferred shares, unless earlier released with the prior written consent of the investor.