STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

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.

Public Offering

On June 18, 2019, the Company consummated the June 2019 Follow-On Offering, pursuant to which a total of 1,923,076 Units were offered and sold at the public offering price of $6.50 per Unit. Each Unit sold 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 $6.50 per share. The offering resulted in the Company’s receipt of gross cash proceeds of $12.5 million, or net cash proceeds of $11.35 million after deduction of commissions and offering costs.

In connection with the June 2019 Follow-On Offering, the Company also issued placement agent warrants exercisable for 153,846 shares of common stock for two years at an exercise price of $8.125 per share. The estimated fair value of these warrants was $205,894, as determined using the Black-Scholes methodology (assuming estimated volatility of 49%, risk-free interest rate of 1.86%, 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.

Share-Based Compensation

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 and restricted stock units to employees, directors or consultants. In March 2019 the Company’s directors approved and in May 2019 the shareholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of common stock for a total of 4,100,000 shares.

The Company generally recognizes share-based 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 six months ended June 30, 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		(16,250	)		1.50		-		-
Forfeited, cancelled, expired		(75,000	)		1.50		-		-
Outstanding June 30, 2019		2,976,250		$	2.94		4.21	$	9,757,700
Vested and exercisable at June 30, 2019		1,208,438		$	1.58		3.92	$	5,611,323

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:

	Six Months
	Ended
	June 30,
	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.

On May 23, 2019 the Company granted a total of 263,087 of service-based RSU’s to employees and consultants vesting over three years that convert to common stock as vesting occurs. A summary is set forth below:

	Service-Based		Grant Date		Vesting
	RSU's		Fair Value		Period
Unvested at January 1, 2019		-
Granted at May 23, 2019		263,087	$	7.24	3 Years
Vested		-
Forfeited and cancelled		-
Unvested at June 30, 2019		263,087

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

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2019		2018		2019		2018
Selling, general and administrative	$	345,217	$	125,878	$	548,417	$	125,878
Research and development		28,634		47,095		52,481		47,095
Total stock-based expense	$	373,851	$	172,973	$	600,898	$	172,973

As of June 30, 2019, total estimated compensation cost of stock options and RSUs granted but not yet vested was $4.3 million which is expected to be recognized over the weighted average period of 2.5 years.

Warrants

The following table summarizes warrant activity during the six months ended June 30, 2019:

	Number			Average Purchase Price Per Share
Shares purchasable under outstanding warrants at January 1, 2019		5,017,181		$	4.82
Stock purchase warrants issued		2,076,922		$	6.62
Stock purchase warrants exercised		(336,317	)	$	4.63
Shares purchasable under outstanding warrants at June 30, 2019		6,757,786		$	5.38

The Company determined that the warrants issued in connection with the June 2019 Follow-On Offering should be classified as equity in accordance with ASC 480. However, changes in director and officer ownership or other factors in future periods could require reclassification of outstanding warrants as a liability with changes in value thereafter reflected in the statement of operations.

The Company has outstanding common stock purchase warrants as of June 30, 2019 as follows:

	Number of		Exercise Price
Description	Common Shares		Per Share		Expiration Date
Purchase Warrants (1)		4,286,907	$	5.00	October 30, 2020
Agent Warrants		393,957	$	3.00	October 30, 2020
Purchase Warrants		1,923,076	$	6.50	June 18, 2021
Agent Warrants		153,846	$	8.125	June 18, 2021

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

Subsequent to June 30, 2019 a total of 15,000 of the $3.00 warrants were exercised for cash proceeds of $45,000.