8. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2018

Stockholders Equity And Share-based Compensation

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

The Company’s authorized capital consists of 150,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. To reflect the recapitalization (see Note 1) historical shares of common stock and additional paid-in capital have been retroactively adjusted using the exchange ratio of approximately 23,930.60 shares of common stock for each member unit of Wrap LLC.

Public Offering

In December 2017, the Company completed a self-underwritten public offering raising gross proceeds of $3,492,800 from the sale of 2,328,533 shares of common stock at $1.50 per share. Net cash proceeds to the Company were $3,422,716 after deduction of $70,084 of offering costs. Three officers of the Company purchased an aggregate of 40,000 shares of the offering for an aggregate of $60,000.

Private Offering

On October 30, 2018 the Company consummated a private offering, pursuant to which it sold 4,561,074 units (“Units”) to certain accredited investors for $3.00 per Unit. Each Unit consisted of one share of common stock and one detachable two-year warrant to purchase one share of common stock at an exercise price of $5.00 per share. The offering resulted in the Company’s receipt of gross cash proceeds of $13,683,222 and net cash proceeds of $12,140,786 after deduction of commissions and offering costs. One officer, Elwood G. Norris, purchased 333,334 of the Units for cash of $1,000,000 on the same terms as those applicable to all other investors.

In connection with the offering, the Company also issued placement agent warrants exercisable for 456,107 shares of common stock for two years at an exercise price of $3.00 per share. The estimated fair value of these warrants was $664,427, as determined using the Black-Scholes methodology (assuming estimated volatility of 49%, risk-free interest rate of 2.84%, and expected dividend yield of 0.0%). This amount was recorded as both an increase to additional paid in capital and as a non-cash issuance cost of the offering.

Stock Options

Effective with the Merger, on March 31, 2017, the Company adopted and the shareholders approved the 2017 Stock Incentive Plan (the “Plan”) authorizing 2,000,000 shares of Company common stock for issuance as stock options, shares of common stock, restricted stock awards and restricted stock units to employees, directors or consultants. The Company generally recognizes stock compensation expense on the grant date and over the period of vesting or period that services will be provided.

In October 2018 the Company granted a consultant options outside of the Plan exercisable for 100,000 shares of common stock at an exercise price of $3.00 per share with 50% vesting ratably over 18 months and the balance vesting based on performance.

The following table summarizes stock option activity for the year ended December 31, 2018:

			Weighted Average
	Options on				Remaining		Aggregate
	Common		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding January 1, 2018		-		-		-	$	-
Granted		2,067,500	$	1.68		4.44		-
Exercised		-		-		-		-
Forfeited, cancelled, expired		-		-		-		-
Outstanding December 31, 2018		2,067,500	$	1.68		4.44	$	3,063,375
Vested and exercisable at December 31, 2018		225,000	$	1.50		4.39	$	371,250

The Company recorded stock-based compensation in its statements of operations as follows:

	Year
	Ended December 31,
	2018		2017
Selling, general and administrative	$	417,151	$	-
Research and development		95,837		-
Total stock-based expense	$	512,988	$	-

As of December 31, 2018, total estimated compensation cost of stock options granted but not yet vested was $970,576, which is expected to be recognized over the weighted average period of 1.1 years.

The Company uses the Black-Scholes option pricing model to determine the fair value of the options granted. The following table summarizes the assumptions used to compute the fair value of options granted to employees and nonemployees:

	Year
	Ended
	December 31,
	2018
Expected stock price volatility	47% to 49%
Risk-free interest rate	2.67% to 2.99%
Forfeiture rate		0	%
Expected dividend yield		0	%
Expected life of options - years		2.75 - 5.00
Weighted-average fair value of options granted	$	0.72

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price, as it only recently commenced trading.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock options as the Company does not have sufficient historical data. The Company has elected to use the contract life of the option for nonemployee stock options.

The following table summarizes information about stock options outstanding at December 31, 2018:

				Weighted
				Average		Weighted				Weighted
				Remaining		Average				Average
Range of		Number		Contractual		Exercise		Number		Exercise
Exercise Prices		Outstanding		Life		Price		Exercisable		Price
$	1.50		1,847,500		4.39	$	1.50		225,000	$	1.50
$	3.00 - $3.61		220,000		4.82	$	3.23		-		-

Warrants

The Company has outstanding common stock purchase warrants as of December 31, 2018 as follows:

	Number of		Exercise Price
Description	Common Shares		Per Share			Expiration Date
Purchase Warrants (1)		4,561,074	$	5.00	October 30, 2020
Agent Warrants		456,107	$	3.00	October 30, 2020

(1) 333,334 warrants are held by a family trust of officer Elwood G. Norris.

The above warrants resulted from the private offering consummated in October 2018. No warrants were exercised during the period from issuance to December 31, 2018.