Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Deficit

v3.19.3
Stockholders' Deficit
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stockholders' Deficit Stockholders’ Deficit
Preferred Stock
Until amending the Company's 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 September 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 8.00% per annum based on $4.80 per Series A preferred share, the dividends were cumulative but non-compounding.
The Series B preferred stock had 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 19, 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 certificate 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 September 30, 2019, 14,745 shares remained under the 2012 Stock Plan. The Company does not intend to utilize the 2012 Stock Plan and instead 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 September 30, 2019, 571,450 shares remained available for grant under the 2018 Stock Plan.
Restricted Stock
Restricted stock activity for the nine months ended September 30, 2019 is summarized as follows:
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Outstanding at December 31, 2018 127,500    $ 3.21   
Outstanding at Granted 200,000    11.54   
Outstanding at Vested (156,666)   4.76   
Outstanding at Outstanding at September 30, 2019 170,834    $ 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 vested within four months of the approval date of the agreement. The remaining 175,000 shares vest over 42 months, beginning on September 19, 2019. As of September 30, 2019, 29,166 shares have vested and 170,834 remain unvested.
During the three months ended September 30, 2019 and 2018, the Company recorded $166,289 and $142,634, respectively, in stock-based compensation for the restricted shares previously issued. During the nine months ended September 30, 2019 and 2018, the Company recorded $763,320 and $427,902, respectively, in stock-based compensation for the restricted shares previously issued.
As of September 30, 2019, there was $1,809,135 of unrecognized compensation expense related to restricted shares.
Stock Options
The following table summarizes stock option activities for the nine months ended September 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 608,550    5.70   
Exercised —    —   
Cancelled —    —   
Outstanding, September 30, 2019 2,843,550    $ 2.59    8.85 $ 23,040,551   
Exercisable, September 30, 2019 767,125    $ 1.73    8.86 $ 6,876,323   
On July 10, 2019, the Company granted 19,000 options to purchase shares of its common stock with a term of 10 years and vesting 25.00% annually over a four-year period. The options had an exercise price of $17.50.
During the nine months ended September 30, 2019, the Company granted certain individuals options to purchase 608,550 shares of the Company’s common stock with an average exercise price of $5.70 per share, for a term of 10 years, and a vesting period ranging from 25.00% per year over 120 days to 25.00% per quarter over 1 year. The options have an aggregated grant date fair value of $2,446,102 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 $17.50 per share.
All options issued and outstanding are being amortized over their respective vesting periods. During the three months ended September 30, 2019 and 2018, the Company recorded option expense of $495,437 and $171,330, respectively. During the nine months ended September 30, 2019 and 2018, the Company recorded stock option expense of $1,096,480 and $233,303, respectively. The unrecognized compensation expense at September 30, 2019 was $3,670,583.
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 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 warrants expire five years from the date of issuance.
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 expense.
On June 16, 2019, the Company entered into a private offering with certain institutional and accredited investors for the sale by the Company in a private placement of 675,000 units (each a “June Unit”), each June Unit consisting of (i) one share of its common stock, and (ii) 0.7 of a warrant (a total of 472,500) to purchase one share of common stock (each a “June Warrant”). The June Warrants included in the June Units are exercisable at a price of $16.00 per share commencing on the date of issuance and will expire 5 years from the effective date of the registration statement pursuant to which the resale of the shares of common stock underlying the June Warrants are registered, or August 23, 2024. The Company estimates the net proceeds from the closing of the sale of the June Units on June 19, 2019 was approximately $8,600,000 after deducting the placement agent fees and estimated offering expenses payable by the Company.
The grant date fair value of these 472,500 June 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 nine months ended September 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 (644,028)   2.15    5,500,609   
Forfeited (cashless exercise) (168,570)   4.06   
Outstanding, September 30, 2019 888,333    $ 9.33    4.46 $ 1,208,572   
Exercisable, September 30, 2019 888,333    $ 9.33    4.46 $ 1,208,572