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12. SHARE-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2020
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 May 2019, the stockholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock and in June 2020 ratified a further authorization of 1,900,000 shares of Common Stock for a total of 6,000,000 shares subject to the Plan.

 

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.

 

Stock Options

The following table summarizes stock option activity for the years ended December 31, 2019 and 2020:

 

          Weighted Average      
    Options on           Remaining   Aggregate  
    Common     Exercise     Contractual   Intrinsic  
    Shares     Price     Term     Value  
Outstanding December 31, 2018     2,067,500     $ 1.68       4.44          
Granted     1,000,000     $ 5.41       -          
Exercised     (38,750 )   $ 1.50       -          
Forfeited, cancelled, expired     (100,000 )   $ 1.50       -          
Outstanding December 31, 2019     2,928,750     $ 2.96       3.71          
Granted     1,423,836     $ 6.66       -          
Exercised     (371,000 )   $ 1.90       -          
Forfeited, cancelled, expired     (50,000 )   $ 3.00       -          
Outstanding December 31, 2020     3,931,586     $ 4.41       4.89     $ 5,176,337  
Vested and exercisable at December 31, 2020     2,091,084     $ 2.68       2.60     $ 4,965,155  

 

In connection with the NSENA acquisition in December 2020 the Company granted 190,000 service-based options and 100,000 performance-based options for future services as employees and consultants at an exercise price of $5.46 per share. Other than the 100,000 performance-based options, all outstanding options at December 31, 2020 are service-based options.

 

Subsequent to December 31, 2020 a total of 58,500 options were exercised for cash proceeds of $87,750.

 

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 non-employees:

 

    For the Year Ended  
    December 31,  
    2020     2019  
Expected stock price volatility     47 %     49 %
Risk-free interest rate     0.38 %     2.41 %
Forfeiture rate     0 %     0 %
Expected dividend yield     0 %     0 %
Expected life of options - years     5.64       3.50  
Weighted-average fair value of options granted   $ 2.90     $ 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.

 

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, 2020:

 

              Weighted                    
              Average     Weighted           Weighted  
              Remaining     Average           Average  
  Range of     Number     Contractual     Exercise     Number     Exercise  
  Exercise Prices     Outstanding     Life (Years)     Price     Exercisable     Price  
  $ 1.50       1,422,750       2.39     $ 1.50       1,422,750     $ 1.50  
  $ 3.15 - $3.61       85,000       2.86     $ 3.75       85,000     $ 3.75  
  $ 4.26 - $6.58       2,073,836       5.89     $ 5.29       583,334     $ 5.41  
  $ 11.22       350,000       9.58     $ 11.22       -       -  

 

Restricted Stock Units

The Plan provides for the grant of restricted stock units (“RSUs”). RSUs are settled in shares of the Company’s Common Stock as the RSUs become vested. In January 2019 the Company granted 263,087 service-based RSUs to officers and employees vesting over a period of three years. In August and September 2019, the Company granted 45,000 service-based RSUs to employees vesting over a period of three years. In January 2020 the Company granted 73,992 service-based RSUs to officers and directors vesting over a period of three years. In April 2020 the Company granted 122,222 service-based RSUs to employees vesting over a period of three years. Also, in April 2020 the Company granted an officer 35,211 performance-based RSUs. During the period July 2020 to December 2020 the Company granted 114,660 service-based RSU’s to employees vesting over three and four years.

 

The following table summarizes RSU activity under the Plan for the years ended December 31, 2019 and 2020:

 

          Weighted Average   Weighted Average  
    Service-Based     Grant Date   Vesting  
    RSU's     Fair Value     Period  
Unvested at December 31, 2018     -       -          
  Granted - service based     308,087     $ 6.77   3.00 Years      
Unvested at December 31, 2019     308,087     $ 6.77          
  Granted - service based     310,874     $ 6.02   3.02 Years      
  Granted - performance based     35,211     $ 4.26          
  Vested     (144,687 )   $ 5.17          
  Forfeited and cancelled     (81,479 )   $ 6.47          
Unvested at December 31, 2020     428,006     $ 6.13   2.27 Years      

 

Share-Based Compensation Expense

The Company recorded share-based compensation in its statements of operations for the relevant periods for options and RSUs as follows:

 

    For the Year Ended  
    December 31,  
     2020      2019  
Selling, general and administrative   $ 1,956,818     $ 1,410,095  
Research and development     279,925       126,001  
Total share-based expense   $ 2,236,743     $ 1,536,096  

 

As of December 31, 2020, total estimated compensation cost of stock options granted and outstanding but not yet vested was $4.6 million which is expected to be recognized over the weighted average period of 2.8 years. As of December 31, 2020, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $2.2 million which is expected to be recognized over the weighted average period of 2.3 years.