SCWorx, Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

Stockholders' Equity

6 Months Ended

Jun. 30, 2019

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 10. Stockholders’ Equity

The December 31, 2018 common share and additional paid-in capital amounts have been restated to reflect the share exchange in connection with the Alliance acquisition of SCW FL Corp. and subsequent one-for-nineteen reverse stock split.

Transfer of Common Shares to Consultants

On or about February 1, 2019, the Company’s founder and CEO as well as the President, transferred an aggregate of approximately 1,379,000 and 144,000 common shares, respectively to certain consultants of the Company, of which approximately 983,000 and 144,000 common shares were sold to consultants in exchange for promissory notes. The Company accounted for these share transfers as stock-based compensation expense based upon the Black-Scholes model as if these were stock option grants made by the Company. The Company used the following inputs in the Black-Scholes option pricing model, expected life of 5 years, risk-free interest rate of 2.51%, volatility 92% and dividend yield of 0%. As a result, the Company recognized approximately $3.6 million of stock-based compensation expense during the first quarter of 2019 related to these share transfers. Additionally, approximately 396,000 shares of common stock were transferred by the founder and CEO to contractors for no consideration. The Company accounted for these share transfers as stock-based compensation based upon the underlying common share price of $0.23 as of the date of transfer. The Company recognized $1.7 million of stock-based compensation expense related to these transfers

during the first quarter 2019

Stock

Incentive

Plan

In connection with Alliance’s acquisition of SCW FL Corp., the Company adopted Alliance’s Second Amended and Restated 2016 Equity Incentive Plan (“2016 Plan”). The 2016 Plan allows the Company to grant shares of the Company’s common stock to the Company’s directors, officers, employees and consultants. On January 30, 2019, the Alliance shareholders approved the amendment of the 2016 Plan to increase the number of shares of common stock available for issuance thereunder to

3,000,000 shares of common stock, on a post-split basis.

On February 13, 2019, the Board of Directors of the Company granted an aggregate of 425,000 restricted stock units (“RSUs”) under the 2016 Plan, of which an aggregate of 325,000 were granted to management and vest quarterly over the next three years, and of which 100,000 were issued to a consultant and vest quarterly over one year. U

pon the effectiveness under the Securities Act of

a registration statement

on Form S-8 with respect to the shares covered by the 2016 Plan, t

hese RSUs

vest in twelve equal quarterly installments, commencing on the grant date of February 13, 2019 and had a grant date fair value of $2.7 million.

The Company also granted an additional 525,000 RSUs which are subject to performance vesting, of which an aggregate of 225,000 were issued to our management and

of which

300,000 were issued to a consultant.

Additionally, the board of directors awarded stock options under the 2016 Plan to each of the four independent board members to acquire an aggregate of 53,572 shares of the Company’s common stock and to an employee to acquire 25,000 shares. The stock options have a term of

five

years, an exercise price of $6.49 per share, vest quarterly over four quarters beginning on the grant date of February 13, 2019 and had a grant date fair value of $431,000. The Company determined the fair value of the stock options using the Black-Scholes model with the following inputs, expected life 10 years, risk-free interest rate 0.25%, dividend yield 0%, expected volatility 90%.

On June 28, 2019, the Company terminated the aforementioned consultant and reversed the stock-based compensation expense recognized during the first quarter 2019 totaling $162,250 as the consultant had not vested in any of the restricted stock units.

The number of shares of the Company’s common stock that are issuable pursuant to warrant and stock option grants with time-based vesting as of June 30, 2019 and for the six months ended are:

Reflective of one-for-nineteen reverse stock split

	Warrant Grants					Stock Option Grants
	Number of Shares Subject to Warrants			Weighted-Average Exercise Price Per Share		Number of Shares Subject to Options		Weighted-Average Exercise Price Per Share
Balance at December 31, 2018		236,825		$	27.84		135,023	$	7.70
Granted		1,112,220		$	5.67		53,572		6.49
Exercised		(11,075	)		5.51		-		-
Cancelled/Forfeited		(26,054	)		5.51		-		-
Balance at June 30, 2019		1,311,916		$	9.88		188,595	$	7.35
Exercisable at June 30, 2019		1,311,916		$	9.88		188,595	$	7.35

As of June 30, 2019 and December 31, 2018, the total unrecognized expense for unvested stock options and restricted stock awards, net of actual forfeitures, was approximately $4.1 million and $0, respectively, to be recognized over a three-year period for restricted stock awards and one year for option grants

from the date of grant.

Stock-based compensation expense is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock-based compensation expense	$	220,540	$	-	$	5,850,373	$	-

Stock-based compensation expense categorized by the equity components is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock option awards	$	73,528	$	-	$	122,547	$	-
Common stock		147,012		-		404,896		-
Transfer of common stock by founders to contractors		-		-		5,322,930		-
	$	220,540	$	-	$	5,850,373	$	-