Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Stockholders' Deficit

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Note 6 - Stockholders' Deficit
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note
6
 - Stockholders’ Deficit
 
Preferred Stock
 
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
March 31, 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.
 
The Series A preferred stock had the following features:
 
 
1.
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 and payable upon the Company’s voluntary or involuntary liquidation, dissolution or winding up, the exercise of conversion rights of the holder, the declaration by the Company’s Board, upon a closing of the sale of the Company’s common shares to the public at a price of at least
$24.00
per share with at least
$50,000,000
of gross proceeds and the common shares listed on the New York Stock Exchange or NASDAQ Capital Market, and upon conversion of at least
50.1%
of the issued and outstanding Series A preferred stock. The Company had the option to pay the dividend in cash or by issuing common stock.
 
 
2.
A liquidation right preference over the right of the Company’s common stock.
 
 
3.
Each share of the Series A preferred stock had
one
voting right.
 
 
4.
Each share of the Series A preferred stock was convertible by the holder, at any time, into shares of common stock equal to
$4.80
divided by a conversion price, initially set at
$4.80.
The conversion price was adjustable upon certain events.
 
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
March 31, 2019,
14,745
shares remained under the
2012
Stock Plan. We do
not
intend to utilize the
2012
Stock Plan and intend to utilize our
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
3,000,000
shares. As of
March 31, 2019,
378,250
shares remained available for grant under the
2018
Stock Plan.
 
Restricted Stock
 
During the
three
months ended
March 31, 2019
and
2018,
the Company recorded
$264,453
and
$145,553,
respectively, in stock-based compensation for the restricted shares previously issued. Immediately upon the Company’s IPO on
February 14, 2019,
all remaining unvested restricted shares of
127,500
vested and
no
 unvested restricted shares remained at
March 31, 2019.
During the
three
months ended
March 31, 2018,
no
restricted shares vested. As of
March 31, 2019,
there was
no
remaining unamortized expense related to the restricted shares.
 
Stock Options
 
The following table summarizes stock option activities for the
three
months ended
March 31, 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
   
401,750
     
1.75
     
 
     
 
 
Exercised
   
-
     
-
     
 
     
 
 
Cancelled
   
-
     
-
     
 
     
 
 
Outstanding, March 31, 2019
   
2,636,750
    $
1.74
     
7.92
     
16,767,663
 
                                 
Exercisable, March 31, 2019
   
7,500
    $
0.13
     
8.51
    $
59,775
 
 
In
January 2019,
certain individuals agreed to the extinguishment of approximately
$484,000
in deferred compensation that had been earned through
September 30, 2018
and was to be repaid out of the proceeds from the Company's IPO. In recognition of this extinguishment of deferred compensation, during the
three
months ended
March 31, 2019,
the Company granted these individuals options to purchase
401,750
shares of the Company’s common stock with an exercise price of
$1.75
per share, for a term of
10
years, and a vesting period of
25%
per quarter over
1
year. The options have an aggregated grant date fair value of
$
456,961
that was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (
1
) discount rate of
2.
53
%
based on the daily yield curve rates for U.S. Treasury obligations, (
2
) expected life of
5.27
years based on the simplified method (vesting plus contractual term divided by
two
), (
3
) expected volatility of
84.
4
% based on the historical volatility of comparable companies' stock, (
4
)
no
expected dividends and (
5
) fair market value of the Company's stock at
$1.67
per share which value was determined by the Company's Board after reviewing and considering, among other factors, a valuation report issued by an independent appraisal firm.
 
All options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at
March 31, 2019
was
$
2,530,333
.
During the
three
months ended
March 31, 2019
and
2018,
the Company recorded option expense of
$247,592
and
$0,
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
five
-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
five
-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 market 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 being amortized over the life of the convertible notes payable. As a result of the Company’s IPO closing on
February 14, 2019,
all
$664,953
of unamortized discount on convertible notes payable was accelerated and recorded as warrant expense.
 
The following table summarizes warrant activities for the
three
months ended
March 31, 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
   
452,081
     
3.18
     
 
     
 
 
Exercised
   
-
     
-
     
 
     
 
 
Cancelled
   
-
     
-
     
 
     
 
 
Outstanding, March 31, 2019
   
1,228,431
    $
2.28
     
4.66
    $
7,154,193
 
                                 
Exercisable, March 31, 2019
   
1,228,431
    $
2.28
     
4.66
    $
7,154,193