Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

v3.8.0.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2018
Stockholders Equity Note [Abstract]  
Stockholders’ Equity

 

NOTE 8 – STOCKHOLDERS’ EQUITY

The Company’s amended and restated certificate of incorporation filed on December 14, 2017, authorizes the Company to issue 10,000,000 shares of preferred stock and 50,000,000 shares of common stock. On February 1, 2018, in connection with the Company’s initial public offering, each share of the Company’s outstanding Series A, Series B, and Series C, Preferred Stock was automatically converted into a share of the Company’s common stock, par value $0.0001 on a one-for-one basis.  

Common Stock

The voting, dividend and liquidation rights of the holders of the common stock are subject to rights of preferred stockholders, if any, as designated by the Board of Directors.  Common stockholders have voting rights at all meetings of stockholders and are entitled to one vote for each share held subject to certain limitations otherwise required by law.  Dividends may be declared and paid on the common stock as and when determined by the Board of Directors subject to any preferential dividend or other rights of preferred stockholders.  The Company does not anticipate declaring any dividends in the foreseeable future.  Upon the dissolution or liquidation of the Company, common stockholders are entitled to receive all assets of the Company, subject to any preferential or other rights of preferred stockholders.

 

Initial Public Offering

On December 18, 2017, the Company announced the commencement of an underwritten public offering of its common stock, par value $0.0001 per share. The offering became effective on January 31, 2018 and trading began on February 1, 2018.  On February 5, 2018, the Company closed the initial public offering selling an aggregate of 3,800,000 shares of common stock at a price to the public of $5.00 for total gross proceeds of $19,000,000, which resulted in net proceeds of $17,485,000, after deducting underwriting discounts and commissions of $1,330,000 and underwriter offering-related transaction costs of $185,000. Additionally, the Company incurred costs associated with the transaction for accounting, legal and other fees and costs of $1,148,352 and a warrant expense of $699,408 for warrants issued to the underwriter pursuant to the underwriter agreement.  Such stock issuance costs have been deducted from the proceeds received from the underwriter and disclosed as net proceeds in the consolidated statement of stockholders’ equity.

On February 9, 2018, the underwriters exercised their over-allotment option to purchase an additional 200,000 shares of common stock at the public offering price of $5.00 per share, of which 100,000 shares of newly issued common stock were purchased from the Company and 100,000 shares were sold by the Company’s CEO’s family trust.  The Company received gross proceeds of $500,000, which resulted in net proceeds to the Company of $465,000, after deducting underwriting discounts and commissions of $35,000.

Warrants

In conjunction with the Company’s initial public offering, on February 1, 2018, the Company issued warrants to the underwriter to purchase 380,000 shares of common stock at a price of $6.00 pursuant to the Underwriting and Warrant Agreements dated February 1, 2018.

The fair value of the warrants was $699,408. The fair value of warrants was estimated using Black-Scholes with the following weighted-average assumptions: fair value of the Company’s common stock at issuance of $5.00 per share; five year contractual term; 42.7% volatility; 0% dividend rate; and a risk-free interest rate of 2.72%.  The warrant expense was treated as a stock issuance cost and was deducted from the gross proceeds received in the offering in the current period.  A corresponding increase in additional paid in capital was recognized in relation to this transaction.

Exercise of Stock Options

During the three month period ended March 31, 2018, the Company issued 321,366 shares of common stock for proceeds of $54,575 in cash related to the exercise of stock options.

Preferred Stock

Preferred Stock may be issued in one or more series, with expressed rights by resolution of the Board of Directors.  As of March 31, 2018, there is no outstanding preferred stock.

On December 14, 2017, the Company was reincorporated in the State of Delaware.  Prior to that date the Company was authorized to issue 5,000,000 shares of preferred stock and 11,000,000 share of common stock.  The authorized preferred stock had been further designated as follows:  500,000 as Series A Preferred Stock; 1,500,000 as Series B Preferred Stock; and 2,000,000 as Series C Preferred Stock.

The liquidation preferences of the preferred shares are as follows:

 

    Series C Preferred Stock

The liquidation preference is $1.50 per share, and the shares have liquidation preference over common stock, Series A Preferred Stock, and Series B Preferred Stock.

    Series B Preferred Stock

The liquidation preference is $0.50 per share, and the shares have liquidation preference over common stock and Series A Preferred Stock.

    Series A Preferred Stock

The liquidation preference is $0.25 per share, the shares have liquidation preference over common stock.

Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock (“Preferred Shares”) are convertible at any time at the option of the holder into one share of common stock.  

In addition, preferred shares automatically convert into shares of common stock upon the date specified by the holders of a majority of the then outstanding shares of such securities, or the closing of a public offering of common stock with gross proceeds of not less than $10,000,000 at an offering price of not less than $5.00 per share.  Each of the Preferred Shares is non-redeemable, has no par value, is not eligible for dividends, unless declared, and the voting rights of the Preferred Shares is equivalent to the voting rights of common stock.  As a result of the Company’s initial public offering exceeding the gross proceeds requirements and the requisite offering price, all of the preferred stock was converted to common stock on February 1, 2018.

Regarding unissued Preferred Shares, the Board of Directors is authorized to determine or alter any or all of the rights, preferences, privileges and restrictions granted to or imposed upon wholly unissued series of Preferred Shares, and to fix or alter the number of shares comprising any such series and the designation thereof, or any of them, and to provide for rights and terms of redemption or conversion of the shares of any such series.

Stock Options

The Company maintained a stock option plan that was established in 2000 (“2000 Plan”).  In November 2008, the Company increased the maximum number of shares of the Company's common stock that were issuable under the 2000 Plan to 3,000,000 shares of the Company's common stock.  The 2000 Plan has expired and no future grants may be awarded under the 2000 Plan.

In December 2011, the Company adopted a stock option plan (“2011 Plan”) under which the Company may issue up to 1,500,000 shares of the Company’s common stock and, as of December 31, 2017, the Company had 240,000 shares of common stock remaining unissued under the 2011 Plan. The 2011 Plan was terminated by the Board of Directors on October 10, 2017, and accordingly, no shares are available for issuance under the 2011 Plan.

In December 2015, the Company adopted a stock option plan (“2015 Plan”) under which the Company may issue up to 1,500,000 shares of the Company’s common stock and, as of December 31, 2017, the Company had 790,000 shares of common stock remaining unissued under the 2015 Plan. The terms of the 2011 Plan and 2015 Plan provided for the grant of incentive options to employees and non-statutory options to employees, directors and consultants of the Company. The 2015 Plan was terminated by the board of directors on October 10, 2017, and accordingly, no shares are available for issuance under the 2015 Plan.

The Board of Directors adopted the 2017 Equity Incentive Plan on October 10, 2017 (the “2017 Plan”). The 2017 Plan allows for the grant of a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, non-qualified stock options, restricted stock grants, unrestricted stock grants and restricted stock units and stock bonuses and performance-based awards.  On December 18, 2017, the Company stockholders approved the “2017 Plan” under which the Company may issue up to 1,500,000 shares of the Company’s common stock.  

The exercise price per share for options under the 2011 Plan, 2015 Plan and 2017 Plan is determined by the Company’s Board of Directors, for incentive stock options the exercise price shall not be less than the fair market value of the Company's common stock on the date of grant, except that for incentive options granted to an owner/employee with a greater than 10% ownership interest in the Company, the exercise price shall not be less than 110% of the fair market value of the Company's common stock on the date of grant.

Options under the plans expire no more than ten years after the date of grant and/or within five years after the date of the grant for incentive options granted to an owner/employee with a greater than 10% ownership interest in the Company.

A summary of stock option activity under the plans during the three month period ended March 31, 2018 is as follows:

 

 

 

Stock Options Outstanding

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Life

(in years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding at January 1, 2018

 

 

2,379,444

 

 

$

1.00

 

 

 

5.30

 

 

$

15,472,456

 

Granted

 

 

-

 

 

$

-

 

 

 

 

 

 

 

 

 

Forfeited / Cancelled

 

 

(24,582

)

 

$

1.43

 

 

 

 

 

 

 

 

 

Exercised

 

 

(416,416

)

 

$

0.86

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2018

 

 

1,938,446

 

 

$

1.02

 

 

 

5.69

 

 

$

6,550,748

 

Exercisable at March 31, 2018

 

 

1,529,689

 

 

$

0.81

 

 

4.82

 

 

$

5,489,827

 

Vested and expected to vest at March 31, 2018

 

 

1,928,671

 

 

$

1.02

 

 

 

5.67

 

 

$

6,525,894

 

 

The following table presents details of the assumptions used to calculate the weighted-average grant date fair value of common stock options granted by the Company.  There were no options issued during the three month periods ended March 31, 2018 and 2017.

 

 

 

For The Three Month Periods

Ended March 31,

 

 

 

2018

 

 

2017

 

Expected term (in years)

 

 

-

 

 

 

-

 

Expected volatility

 

 

-

 

 

 

-

 

Risk-free interest rate

 

 

-

 

 

 

-

 

Weighted average grant date fair value per share

 

 

-

 

 

 

-

 

Grant date fair value of options vested

 

$

1,240,805

 

 

$

1,428,468

 

Intrinsic value of options exercised

 

$

1,472,506

 

 

$

30,000

 

 

As of March 31, 2018, the amount of unearned stock-based compensation currently estimated to be expensed during the remainder of 2018 through 2020 related to unvested common stock options is $215,760, net of estimated forfeitures. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is 1.0 years.

If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense or calculate and record additional expense.  Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional common stock options or other stock-based awards.

Stock-based compensation expense for the three month periods ended March 31, 2018 and 2017 was comprised of the following:

 

 

 

For The Three Month Periods

ended March 31,

 

 

 

2018

 

 

2017

 

Stock-based compensation classified as:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

3,190

 

 

$

-

 

General and administrative

 

 

21,820

 

 

 

18,500

 

Marketing and selling

 

 

2,949

 

 

 

4,900

 

Research and development

 

 

7,359

 

 

 

1,226

 

 

 

$

35,318

 

 

$

24,626

 

 

Warrants

The following table summarizes the Company’s warrant activity during the three month period ended March 31, 2018:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

 

Warrants outstanding – January 1, 2018

 

 

198,996

 

 

$

1.11

 

Warrants granted

 

 

380,000

 

 

 

6.00

 

Warrants exercised

 

 

-

 

 

 

-

 

Warrants outstanding – March 31, 2018

 

 

578,996

 

 

$

4.32

 

In connection with the Company’s initial public offering, the Company issued warrants to purchase 380,000 shares of common stock, as described above.