Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Stockholders' Deficit

v3.19.2
Note 6 - Stockholders' Deficit
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note
6
 - Stockholders’ Deficit
 
Preferred Stock
 
Until amending the Certificate of Incorporation in
February 2019,
the Company was authorized to issue
2,534,766
shares of preferred stock with a par value of
$0.001
per share with such designation, rights, and preferences as
may
be determined from time-to-time by the Company's Board. As of
June 30, 2019
and
December 31, 2018
, there were
0
and
416,666
Series A preferred stock and
0
and
2,118,100
Series B preferred stock issued and outstanding, respectively. Dividends accrued at a rate of
8%
per annum based on
$4.80
per Series A preferred share, the dividends were cumulative but non-compounding.
 
The Series B preferred stock has similar rights as Series A preferred stock except that the dividends were based on
$6.61
per Series B preferred share and Series B preferred stock was convertible into common stock at a rate of
$6.61
divided by a conversion price initially set at
$6.61.
As of the Company’s IPO date of
February 19, 2019
and
December 31, 2018,
accrued dividends for preferred stock were
$4,773,480
and
$4,613,261,
respectively. The holder of the Series A and Series B preferred stock agreed to convert the preferred stock into common stock upon the completion of the Company's IPO. The holders of the Company’s outstanding shares of preferred stock agreed to waive the adjustment to the conversion price of the preferred stock upon the issuances of the Third and Fourth Note.
 
On
February 14, 2019,
all outstanding shares of Series A and Series B preferred stock and accrued dividends on these shares were converted into
2,534,766
and
954,696
shares of common stock upon the closing of the Company’s IPO. The Company amended its articles of incorporation on
February 19, 2019
to
no
longer have preferred shares authorized under the amended articles of incorporation.
 
Adoption of
2012
Long Term Incentive Plan
 
In
November 2012,
the Company’s Board and stockholders adopted the
2012
Long Term Incentive Plan (the
“2012
Stock Plan”). The
2012
Stock Plan is designed to enable the Company to offer employees, officers, directors and consultants, as defined, an opportunity to acquire a proprietary interest in the Company. The types of awards that
may
be granted under the
2012
Stock Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations under applicable law. All awards are subject to approval by the Company’s Board. The
2012
Stock Plan reserves shares of common stock for issuance in accordance with the
2012
Stock Plan’s terms. Total number of shares reserved and available for issuance under the plan is
789,745
shares. As of
June 30, 2019
,
14,745
shares remained under the
2012
Stock Plan. The Company does
not
intend to utilize the
2012
Stock Plan and intends to utilize the
2018
Stock Plan.
 
Adoption of
2018
Stock Plan
 
In
June 2018,
the Company’s Board and stockholders adopted the
2018
Stock Plan. The
2018
Stock Plan is designed to enable the Company to offer employees, officers, directors and consultants, as defined, an opportunity to acquire a proprietary interest in the Company. The types of awards that
may
be granted under the
2018
Stock Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations under applicable law. All awards are subject to approval by the Company’s Board. The
2018
Stock Plan reserves shares of common stock for issuance in accordance with the
2018
Stock Plan’s terms. Total number of shares reserved and available for issuance under the plan is
3,400,000
shares. As of
June 30, 2019
,
590,450
shares remained available for grant under the
2018
Stock Plan.
 
Restricted Stock
 
Restricted stock activity for the
six
months ended
June 30, 2019
is summarized as follows:
 
   
Number of
Shares
   
Weighted-
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2018
   
127,500
    $
3.21
 
Granted
   
-
     
 
 
Vested
   
(127,500
)    
3.21
 
Forfeited
   
-
     
 
 
Outstanding at March 31, 2019
   
-
     
-
 
Granted
   
200,000
     
11.54
 
Vested
   
(16,668
)    
11.54
 
Forfeited
   
-
     
 
 
Outstanding at June 30, 2019
   
183,332
    $
11.54
 
 
On
May
8
,
2019,
the Company granted and issued
200,000
shares of restricted common stock to
three
consultants in connection with the provision of services pursuant to agreements entered into in
April 2019.
The consultants were each accredited investors.
25,000
shares vest within
four
months of the approval date of the agreement. The remaining
175,000
shares vest over
42
-months, beginning on
September 19, 2019.
 
During the
three
months ended
June 30, 2019
and
2018,
the Company recorded
$332,577
and
$142,634,
respectively, in stock-based compensation for the restricted shares previously issued. During the
six
months ended
June 30, 2019
and
2018,
the Company recorded
$597,031
and
$285,268,
respectively, in stock-based compensation for the restricted shares previously issued.
 
As of
June 30, 2019
, there was
$1,975,424
 unamortized expense remaining related to the restricted shares.
 
Stock Options
 
The following table summarizes stock option activities for the
six
months ended
June 30, 2019
:
 
   
Number of
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining Life
(in Years)
   
Aggregate
Intrinsic
Value
 
                                 
Outstanding, December 31, 2018
   
2,235,000
    $
1.74
     
9.44
    $
23,100
 
Granted    
589,550
     
5.32
     
 
     
 
 
Exercised
   
-
     
-
     
 
     
 
 
Cancelled
   
-
     
-
     
 
     
 
 
Outstanding, June 30, 2019
   
2,824,550
    $
2.49
     
9.11
    $
34,496,387
 
                                 
Exercisable, June 30, 2019
   
662,938
    $
1.73
     
8.26
    $
8,597,191
 
 
During the
six
months ended
June 30, 2019
, the Company granted certain individuals options to purchase
589,500
shares of the Company’s common stock with an average exercise price of $
5.32
per share, for a term of
10
years, and a vesting period ranging from
25%
per year over
4
-years to
25%
per quarter over
1
-year. The options have an aggregated grant date fair value of
$2,204,866
that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (
1
) discount rate ranging from
1.76%
to
2.53%
based on the daily yield curve rates for U.S. Treasury obligations, (
2
) expected life ranging from
5.27
to
6.25
years based on the simplified method (vesting plus contractual term divided by
two
), (
3
) expected volatility ranging from
84.3%
to
85.1%
based on the historical volatility of comparable companies' stock, (
4
)
no
expected dividends and (
5
) fair market value of the Company's stock ranging from
$1.75
to
$14.62
per share.
 
All options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at
June 30, 2019
was
$3,924,786.
During the
three
months ended
June 30, 2019
and
2018
, the Company recorded option expense of
$353,451
and
$59,055,
respectively. During the
six
months ended
June 30, 2019
and
2018,
the Company recorded stock option expense of
$601,043
and
$61,975,
respectively.
 
Warrants
 
On
April 20, 2018,
the Company issued warrants to purchase
79,350
shares of common stock at an exercise price of
$1.75.
The warrants expire on
April 20, 2023.
The warrants were issued to a placement agent in connection with notes issued under the Fourth Note.
 
On
June 8, 2018,
the Company issued warrants to purchase
12,000
shares of common stock at an exercise price of
$1.75.
The warrants expire on
June 8, 2023.
The warrants were issued to a placement agent in connection with notes issued under the Fourth Note.
 
From
October
through
December 2018,
the Company issued warrants to purchase
685,000
shares of common stock at an exercise price of
$1.75.
The warrants expire
5
years from the date of issuance. In addition, the Company issued warrants to purchase
300,000
shares of common stock at an exercise price of
$1.75
on various dates in
January
and
February
of
2019.
The warrants were issued to investors in connection with notes issued under the Fifth Note.
 
On
February 19, 2019,
the Company issued
5
-year warrants to the underwriters of the Company's IPO to purchase
152,081
shares of common stock at an exercise price of
$6.00.
 
The grant date fair value of these
1,228,431
warrants was
$1,636,232,
which was determined utilizing the Black-Scholes option pricing model. Variables used in the Black-Scholes option-pricing model include (
1
) discount rate in the range of
2.5%
to
2.8%
based on the daily yield curve rates for U.S. Treasury obligations, (
2
) expected term of
5
years based on the term of the warrants, (
3
) expected volatility of
84%
to
85%
based on the historical volatility of comparable companies' stock, (
4
)
no
expected dividends, and (
5
) fair value of the Company's stock at
$1.67
per share for warrants issued prior to the IPO, a value determined by the Company's Board after reviewing and considering, among other factors, a valuation report issued by an independent appraisal firm, or the fair market value of the Company's stock at the closing of its' IPO on
February 19, 2019
of
$4.87
for warrants on that day.
 
The fair value amount was included in discounts on convertible notes payable and was amortized over the life of the convertible notes payable
. As a result of the Company’s IPO closing on
February 19, 2019,
all
$664,953
of unamortized discount on convertible notes payable was accelerated and recorded as warrant expense.
 
On
June 16, 2019,
the Company entered into a PIPE offering with certain institutional and accredited investors for the sale by the Company in a private placement of
675,000
units (each a “Unit”), each Unit consisting of (i)
one
share of our common stock, and (ii)
0.7
of a warrant (a total of
472,500
) to purchase
one
share of common stock
(each a “Warrant”). The Warrants included in the Units are exercisable at a price of
$16.00
per share.
 
The grant date fair value of these
472,500
warrants
was
$4,420,503,
 which was determined utilizing the Black-Scholes option pricing model. Variables used in the Black-Scholes option-pricing model include (
1
) discount rate of
1.85%
based on the daily yield curve rates for U.S. Treasury obligations, (
2
) expected term of
5
years based on the term of the warrants, (
3
) expected volatility of
85%
based on the historical volatility of comparable companies' stock, (
4
)
no
expected dividends, and (
5
) fair value of the Company's stock at
$14.30
per share.
The fair value amount was included in additional paid-in-capital as a deal cost.
The following table summarizes warrant activity for the
six
months ended
June 30, 2019
:
 
   
Number of
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual
Term
(in Years)
   
Aggregate
Intrinsic
Value
 
                                 
Outstanding, December 31, 2018
   
776,350
    $
1.75
     
4.80
    $
-
 
Granted
   
924,581
     
9.73
     
 
     
 
 
Exercised    
(205,715
)    
3.00
     
 
     
2,407,008
 
Forfeited (cashless exercise)
   
(114,383
)    
5.15
     
 
     
 
 
Outstanding, June 30, 2019
   
1,380,833
    $
6.63
     
4.61
    $
11,148,662
 
                                 
Exercisable, June 30, 2019
   
1,380,833
    $
5.90
     
4.61
    $
12,148,662