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10. SHARE-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
SHARE-BASED COMPENSATION

On March 31, 2017, the Company adopted and the stockholders 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 (“RSUs”) to employees, directors or consultants. In March 2019, the Board of the Company approved and in May 2019, the stockholders 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.

 

In October 2018 the Company granted consultant options outside of the Plan exercisable for 100,000 shares of common stock at an exercise price of $3.00 per share with 50% vesting ratably over 18 months and the balance vesting based on performance.

 

The following table summarizes stock option activity for the years ended December 31, 2018 and 2019:

 

          Weighted Average      
    Options on           Remaining   Aggregate  
    Common     Exercise     Contractual   Intrinsic  
    Shares     Price     Term   Value   
Outstanding January 1, 2018     -       -            
Granted     2,067,500     $ 1.68            
Exercised     -       -            
Forfeited, cancelled, expired     -       -            
Outstanding December 31, 2018     2,067,500     $ 1.68       4.44      
Granted     1,000,000       5.41       5.00      
Exercised     (38,750 )     1.50       -      
Forfeited, cancelled, expired     (100,000 )     1.50       -      
Outstanding December 31, 2019     2,928,750     $ 2.96       3.71   $10,031,388  
Vested and exercisable at December 31, 2019     1,573,853     $ 1.64       3.43   $7,479,791  

 

Subsequent to December 31, 2019 a total of 84,375 options were exercised for cash proceeds of $126,562.

 

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:

 

    Year Ended December 31,  
    2019     2018  
Expected stock price volatility     49 %   47% to 49%  
Risk-free interest rate     2.41 %   2.67% to 2.99%  
Forfeiture rate     0 %     0 %
Expected dividend yield     0 %     0 %
Expected life of options - years     3.50       2.75-5.00  
Weighted-average fair value of options granted   $ 2.06     $ 0.72  

 

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.

 

The following table summarizes information about stock options outstanding at December 31, 2019:

 

              Average     Weighted           Weighted  
              Remaining     Average           Average  
  Range of     Number     Contractual     Exercise     Number     Exercise  
  Exercise Prices     Outstanding     Life     Price     Exercisable     Price  
  $ 1.50       1,708,750       3.4     $ 1.50       1,448,853     $ 1.50  
  $ 3.00 - $3.61       220,000       4.07     $ 3.23       125,000       3.83  
  $ 5.41       1,000,000       4.22     $ 5.41       -       -  

 

During 2019 the Company granted a total of 308,087 service-based RSUs to employees and consultants vesting over three years that convert to Common Stock as vesting occurs. A summary is set forth below:

 

          Weighted Average      
    Service-Based     Grant Date   Vesting  
    RSU's     Fair Value   Period   
Unvested at January 1, 2019     -            
  Granted     308,087     $ 6.77   3 Years  
  Vested     -              
  Forfeited and cancelled     -              
Unvested at December 31, 2019     308,087              

 

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

 

    Year Ended December 31,  
    2019     2018  
Selling, general and administrative   $ 1,410,095     $ 417,151  
Research and development     126,001       95,837  
Total stock-based expense   $ 1,536,096     $ 512,988  

 

As of December 31, 2019, total estimated compensation cost of stock options and RSUs granted but not yet vested was $3.5 million which is expected to be recognized over the weighted average period of 2.14 years.