STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

3 Months Ended

Mar. 31, 2019

Stockholders' equity:

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

The Company’s authorized capital consists of 150,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share.

Stock Options

On March 31, 2017, the Company adopted and the Company’s shareholders approved the 2017 Stock Incentive Plan (the “Plan”) authorizing 2,000,000 shares of Company common stock for issuance as stock options and restricted stock units to employees, directors or consultants. In March 2019, the Company’s directors approved an amendment to the Plan to increase the number of shares of common stock authorized for issuance thereunder from 2,000,000 shares of common stock to 4,100,000 shares of common stock (the “Plan Increase”). The Plan Increase is subject to shareholder approval, and grants made by the Company under the Plan that are contingent upon the Plan Increase are null if shareholder approval is not obtained within one year from the date of Board approval of the Plan Increase.

The Company generally recognizes stock compensation expense on the grant date and over the period of vesting or period that services will be provided.

The following table summarizes stock option activity under the Plan for the three months ended March 31, 2019:

			Weighted Average
	Options on				Remaining		Aggregate
	Common		Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value
Outstanding January 1, 2019		2,067,500	$	1.68		4.44	$	3,063,375
Granted		1,000,000		5.41		5.00		-
Exercised		-		-		-		-
Forfeited, cancelled, expired		-		-		-		-
Outstanding March 31, 2019		3,067,500	$	2.90		4.45	$	12,887,800
Vested and exercisable at March 31, 2019		225,000	$	1.50		4.15	$	1,260,000

The Company recorded stock-based compensation in its statements of operations for the relevant periods as follows:

	For the Three Months
	Ended March 31,
	2019		2018
Selling, general and administrative	$	203,200	$	-
Research and development		23,847		-
Total stock-based expense	$	227,047	$	-

As of March 31, 2019, total estimated compensation cost of stock options granted but not yet vested was $2.8 million, which is expected to be recognized over the weighted average period of 2.4 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:

	Three Months
	Ended
	March 31,
	2019
Expected stock price volatility		49	%
Risk-free interest rate		2.41	%
Forfeiture rate		0	%
Expected dividend yield		0	%
Expected life of options - years		3.50
Weighted-average fair value of options granted	$	2.06

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.

Warrants

The Company has outstanding common stock purchase warrants as of March 31, 2019 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) Warrants to purchase 333,334 shares of common stock are held by a family trust of Elwood G. Norris, the Company’s Chief Technology Officer.

The issuance of the above warrants resulted from a private offering of Company securities consummated in October 2018. Subsequent to March 31, 2019 a total of 180,000 of the $5.00 warrants were exercised and 22,150 of the $3.00 warrants were exercised, for cash proceeds to the Company of $966,450.