NOTE 9 – STOCKHOLDERS’ EQUITY

Preferred Stock

At June 30, 2020, the Company had 10,000,000 shares of preferred stock, par value $0.0001, authorized for issuance, of which no shares of preferred stock were issued or outstanding.

Common Stock

At June 30, 2020, the Company had 350,000,000 shares of common stock, par value $0.0001 (the “Common Stock”) authorized for issuance, of which 59,268,085 shares of our Common Stock were issued and outstanding.

Warrants to Purchase Common Stock

We use the Black-Scholes-Merton option pricing model (“Black-Scholes Model”) to determine the fair value of warrants to purchase Common Stock of the Company (“Warrants”). The Black-Scholes Model is an acceptable model in accordance with the GAAP. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrant.

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 Warrants. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility is an average of the historical volatility of peer entities whose stock prices were publicly available over a period equal to the expected life of the awards. We used the historical volatility of peer entities due to the lack of sufficient historical data of our stock price.

On May 6, 2020, the Company’s Board issued (i) Warrants to purchase an aggregate of 143,750 shares of Common Stock with an exercise price of $2.50 per share, and (ii) Warrants to purchase an aggregate of 29,375 shares of Common Stock with an exercise price of $2.13 per share.

On May 6, 2020, the Company also issued Warrants to purchase an aggregate of 694,625 shares of Common Stock with an exercise price of $2.50 to certain former employees in exchange for 694,625 stock options to purchase Common Stock of the Company. The Company did not recognize any incremental compensation as a result of the exchange.

All of the above Warrants were issued to certain individuals for prior service to the Company. The Warrants are fully vested and have a term of five years. The Warrants were, and the shares of Common Stock underlying the Warrants will be, issued in reliance on the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, as a sale not involving any public offering. The assumptions used in the Black-Scholes Model are set forth in the table below.

For both the three and six months ended June 30, 2020, $83,654 was recorded in stock-based compensation in the accompanying unaudited condensed consolidated financial statements. No Warrants were issued during the six months ended June 30, 2019. As of June 30, 2020, we had Warrants outstanding to purchase an aggregate of 5,639,167 shares of Common Stock with a weighted-average contractual remaining life of approximately 2.7 years, and exercise prices ranging from $0.01 to $3.25 per share, resulting in a weighted average exercise price of $3.05 per share. At June 30, 2020, no Warrants had been exercised.

Equity Incentive Plan

In connection with the Closing, our Board approved, and our stockholders adopted, the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 10,000,000 shares of our Common Stock has been reserved for issuance to employees, including officers, directors and consultants. The 2018 Plan shall be administered by the Board, provided however, that the Board may delegate such administration to the compensation committee of the Board (the “Compensation Committee”). Subject to the provisions of the 2018 Plan, the Board and/or the Compensation Committee shall have authority to grant, in its discretion, incentive stock options, or non-statutory options, stock awards or restricted stock purchase offers (“Equity Awards”).

Stock Options to Purchase Common Stock

In January 2020, pursuant to the terms of a Severance Agreement, a stock option to purchase 19,625 shares of the Company’s Common Stock (the “Option”) (valued at $15,479), was granted to a former employee pursuant to the 2018 Plan. On May 6, 2020, the Option was, by mutual consent, changed to a Warrant, which Warrant is included in the discussion of Warrants above.

On May 6, 2020, the Compensation Committee of the Board granted Options to purchase an aggregate of 1,499,000 shares of the Company’s Common Stock with an exercise price of $2.13 per share. These Options, granted pursuant to the Company’s 2018 Plan, were granted to employees and consultants of the Company in connection with their service to the Company. The assumptions used in the Black-Scholes Model are set forth in the table below.

For the three and six months ended June 30, 2020, $737,306 and $752,785, respectively, was recorded in stock-based compensation in the accompanying unaudited condensed consolidated financial statements. No Options were issued during the six months ended June 30, 2019. As of June 30, 2020, we had outstanding Options to purchase an aggregate of 1,499,000 shares of the Company Common Stock, with a weighted-average contractual remaining life of approximately 9.9 years, and an exercise price of $2.13 per share, resulting in a weighted average exercise price of $2.133 per share. At June 30, 2020, total unrecognized estimated compensation expense related to non-vested Options issued prior to that date was approximately $382,000, which is expected to be recognized over a weighted-average period of 1.8 years. At June 30, 2020, no Options had been exercised.

Restricted Stock Purchase Offers

On June 3, 2020, the Company entered into an agreement wherein restricted stock purchase offers (“RSU(s)”) for the issuance of 3,000,000 shares of the Company’s Common Stock, with deferred distribution, was granted and issued to Thomas V. Bushey, the Company’s President, pursuant to the 2018 Plan. Stock-based compensation expense for both the three and six months ended June 30, 2020 was $1,050,000. Non-vested RSUs as of June 30, 2020 totaled 2,625,000 shares. The weighted average grant-date fair value for the RSU is $2.80. The weighted average vesting period of the RSU is 2.0 years. As of June 30, 2020, unrecognized compensation expense related to the unvested portion of the RSU was $7,350,000, which is expected to be recognized over a weighted average period of 1.75 years.

During 2018, the Company entered into an agreement wherein RSUs for the issuance of 378,478 shares of the Company’s Common Stock, with deferred distribution, was promised to a consultant pursuant to the 2018 Plan. Stock-based compensation expense for the three and six months ended June 30, 2020 was $10,120 and $20,240, respectively. The Company has not yet executed the RSU agreement with the consultant. Non-vested RSUs as of June 30, 2020 totaled 47,308 shares. The weighted average grant-date fair value for the RSU is $0.22. The weighted average vesting period of the RSU is 2.0 years. As of June 30, 2020, unrecognized compensation expense related to the unvested portion of the RSU was $10,117, which is expected to be recognized over a weighted average period of 0.25 years.

The Company recognizes RSU expense over the period of vesting or period that services will be provided. Compensation associated with shares of Common Stock issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement date, which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares in exchange for the services to be provided.