9. Series A Convertible Preferred Stock

In June 2020, the Company authorized the sale and issuance of up to 8,943,906 shares of Series A Preferred. The Series A Preferred financing was structured so that 2,047,500 shares would be issued at the first closing to one investor (“Initial Investor”) at $1.4652 per share (“First Closing”) and up to 6,896,406 shares at $1.685 per share could be issued upon the exercise of certain warrants (“Milestone Warrants”) upon achieving the following development milestones (“Development Milestones): (a) the earlier of (x) filing by the Company with the FDA of an IND, or (y) the making of an analogous regulatory filing in any foreign jurisdictions; and (b) arrangement by the Company of active pharmaceutical ingredient in amounts sufficient to facilitate the consummation of any trial to be effected pursuant to a filing.

Upon certification by the Board of Directors, the Company has the obligation to issue and the Initial Investor plus one designated additional investor (“Additional Investor”) have the right and obligation to purchase Milestone Warrants to purchase 766,266 and 6,130,140 shares of Series A Preferred, respectively and as amended. The Milestone Warrants will have a purchase price of $0.32626 per share of the additional 6,896,406 shares of Series A Preferred for total proceeds of $2,250,000 and the right to purchase the additional 6,896,406 shares of Series A Preferred at $1.685 per share. The term of the Milestone Warrants will be three years from the date of issuance.

On June 18, 2020, the Company issued 2,047,500 shares of Series A Preferred for gross cash proceeds of $3,000,000. Issuance costs paid in cash totaled $24,248.

On March 8, 2021, the requisite development milestones were achieved, and therefore the Milestone Warrants were purchased for $2,250,000 in cash. (See Note 4)

The Company determined the obligation of the Company, the rights and obligations of the initial Series A Preferred shareholder and the one designated additional investor to purchase Milestone Warrants does not meet the definition of a freestanding financial instrument as it is not separable from the Series A Preferred issued in June 2020.

As of March 31, 2021, the rights and preferences of the Series A Preferred are as follows:

Conversion - Each share of Series A Preferred may be converted at any time, at the option of the holder, into shares of common stock, subject to the applicable conversion rate as determined by dividing the original issue price by the conversion price. The initial conversion price for the Series A Preferred issued at the First Closing is $1.4652, however, it may be adjusted for certain dilutive events. The initial conversion price for the Series A Preferred issued upon the exercise of the Milestone Warrants will be $1.685, however, it may be adjusted for certain dilutive events. The Series A Preferred automatically converts into shares of common stock at a 1:1 conversion ratio at the earlier of the closing of a public offering of the Company’s securities at any price per share or at the election of the holders of at least a majority of the then-outstanding shares of Series A Preferred.

If the Initial Investor or any of its affiliates that may have received a portion of the shares from the Initial Closing, fails to purchase the designated Milestone Warrant upon the achievement of the development milestones, then all of shares from the Initial Closing still held by the Initial Investor and any of its affiliates will automatically convert into shares of Common Stock at a 1:1 conversion.

Dividends - Series A Preferred shareholders shall first receive, or simultaneously receive, a dividend if declared on any other class or series of capital stock.

Voting Rights - Preferred Stock and common stockholders vote together as one class on an as converted basis. Common stock voting rights on certain matters are subject to the powers, preferences, and rights of the Preferred Stock. Holders are entitled to vote on all matters and shall have the number of votes equal to the number of shares of common stock into which the shares of Preferred Stock held by such holder are then convertible. Certain actions such as mergers, acquisition, liquidation, dissolution, wind up of business, and deemed liquidation events, must be approved by the holders of at least a majority of the then-outstanding shares of Series A Preferred.

Liquidation Preference - Upon liquidation, dissolution, or winding up of business, the Preferred Stockholders are entitled to receive a liquidation preference in priority to holders of common stock equal to the original Series A Preferred issue price plus any accrued but unpaid dividends if that amount is greater than what it would have received had their shares been converted to common stock. If assets available for distribution are insufficient to satisfy the liquidation payment to holders in full, assets available for distribution will be allocated among holders based on their pro rata shareholdings. When holders are satisfied in full, any excess assets available for distribution will be allocated ratably among common stockholders based on their pro rata shareholdings. The liquidation preference as of March 31, 2021 is $3,000,000.

Redemption – Other than as described in Note 3, the Series A Preferred is not redeemable.

Upon the closing of the IPO on May 11, 2021, all outstanding shares of the Company’s convertible preferred stock were automatically converted into shares of common stock and all outstanding shares of the Company’s Series A milestone warrants were converted on a net exercised basis into shares of common stock, resulting in a total of 7,283,843 shares of common stock being issued to former holders of the Company’s convertible preferred stock and Series A milestone warrants.