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Stock-Based Compensation

12 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

NOTE 9 - Stock-Based Compensation

During the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, stock-based expense related to the stock options, restricted stock units and stock awards was included in general and administrative and research and development costs as follows in the accompanying consolidated statements of operations:

	2019		2018

General and administrative	$	357,318	$	480,653
Research and development		134,431		5,467
Total stock-based compensation expense	$	491,749	$	486,120

The Company's 2016 and 2017 Equity Incentive Plans provide for the issuance of restricted shares and stock options to employees, directors, and consultants of the Company. The Company initially reserved 2,292,265 shares of common stock for issuance under the 2016 and 2017 Equity Incentive Plans on a combined basis.

Evergreen provision

Under the 2017 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date the 2017 Plan is approved by the stockholders of the Company, commencing on January 1, 2019 and ending on (and including) January 1, 2027, to an amount equal to 13% of the fully-diluted shares outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. "Fully Diluted Shares" as of a date means an amount equal to the number of shares of common stock (i) outstanding and (ii) issuable upon exercise, conversion or settlement of outstanding awards under the 2017 Plan and any other outstanding options, warrants or other securities of the Company that are (directly or indirectly) convertible or exchangeable into or exercisable for shares of common stock, in each case as of the close of business of the Company on December 31 of the preceding calendar year. On January 1, 2019, 498,848 shares were added to the 2017 Plan as a result of the evergreen provision.

Stock Options

During the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, 675,667 and 2,500 stock options were granted to employees, directors and consultants at a weighted average exercise price of $2.32 and $5.34 per share, respectively. The stock options granted during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018 had a weighted average grant date fair value of $1.13 and $2.48 per share, respectively, with the vesting period ranging from being immediate to four years. The options expire ten years from the date of grant.

The following table summarizes the Company's stock option plan activity for the year ended September 30, 2019 and the nine month transition period ended September 30, 2018 as follows:

						Weighted-
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term (years)		Value(1)
Outstanding at December 31, 2017		365,716		$	0.03		9.3	$	908,920
Granted		2,500		$	5.34		—
Exercised		—		$	—		—
Forfeited/Cancelled		—		$	—		—
Outstanding at September 30, 2018		368,216		$	0.07		8.6	$	820,862
Granted		675,667		$	2.32		—
Exercised		(198,043	)	$	0.27		—
Forfeited/Cancelled		—			—		—
Outstanding at September 30, 2019		845,840		$	1.82		9.0	$	343,406
Vested and exercisable at September 30, 2019		458,311		$	1.42		8.7	$	343,406

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of our common stock as of September 30, 2019 and 2018 of $1.87 and $2.30 per share, respectively. As of September 30, 2019, 658,730 and 271,201 outstanding and vested options, respectively, have no intrinsic value.

The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock options granted during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018:

	2019			2018

Expected stock price volatility		50.4	%		49.8	%
Expected life of options (years)		5.6			5.0
Expected dividend yield		0	%		0	%
Risk free interest rate		2.4	%		2.8	%

During the year ended September 30, 2019, 288,138 stock options vested having a weighted average grant date fair value per option of $1.11. During the nine month transition period ended September 30, 2018, 2,500 stock options vested with the weighted average grant date fair value per option of $2.48. During the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, no options were forfeited.

Restricted Stock Units

The Company issued 42,018 restricted stock units ("RSUs") in June 2019 to members of its board of directors that vest monthly over one year upon grant of which 10,503 RSUs had vested as of September 30, 2019 for which common stock was issued. The grant date fair value of the RSUs was $2.38 per unit. There were no RSUs issued during the nine month transition period ended September 30, 2018. The total expense for the year ended September 30, 2019 related to these RSU's was $32,223.

Other Stock-Based Awards

A total of 250,000 shares of common stock were reserved in February 2018 as a result of a consulting agreement for investor relations services executed in February 2018. Under the agreement, 50,000 and 200,000 shares of common stock were awarded during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively, subject to time-based vesting conditions. The compensation expense related to the vested common shares was included in the total stock-based compensation expense referenced above which totaled $115,000 and $469,500 during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively. The expense was based on the fair value of the underlying common stock at the point of vesting which, on a weighted average basis, was $2.30 and $2.35 per share during the year ended September 30, 2019 and the nine month transition period ended September 30, 2018, respectively. The underlying stock price used in the analysis was on a non-marketable basis and was according to the market approach, considering both the traded price and forward multiples from guideline public companies, using allocation and marketability-discount methodologies. As of November 2018, all shares under the February 2018 share reserve were issued from the Company's authorized but unissued shares, but were not eligible to be issued under the 2016 or 2017 Equity Incentive Plan reserves.

In addition, the Company previously had formal obligations to issue future common stock options relating to several consulting agreements. A total of 38,874 stock options were granted in May 2019 related to those consulting agreements. The corresponding stock-based compensation expense related to the stock-based awards was included in research and development expense in the accompanying consolidated statements of operations.

As of September 30, 2019, 1,489,759 shares were available for future issuance on a combined basis under the 2016 and 2017 Equity Incentive Plans. Unrecognized stock-based compensation was $473,643 as of September 30, 2019. The unrecognized share-based expense is expected to be recognized over a weighted average period of 2.5 years.