Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

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STOCK-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
NOTE 16. STOCK-BASED COMPENSATION

2016 Equity Incentive Plan

 

In the first quarter of 2016, the Company adopted the 2016 Equity Incentive Plan. The following table contains information about the 2016 Equity Incentive Plan as of December 31, 2017:

 

   

Awards Reserved

for Issuance

     Awards Issued    

Awards Available

for Grant

  
                   
2016 Equity Incentive Plan     30,000,000       1,177,732       28,822,268  
                         

 

Stock Options

 

The following table summarizes the Company’s stock option activity and related information for the year ended December 31, 2017:

 

    Number of Shares     Weighted-Average Exercise Price Per Share     Weighted-Average Remaining Contractual Life   Aggregate Intrinsic Value of In-the-Money Options  
                       
Options Outstanding as of January 1, 2016     -     $ -            
                           
Options Granted     446,667     $ 1.35            
Options Exercised     -     $ -            
Options Forfeited     -     $ -            
Options Expired     -     $ -            
Options Outstanding as of December 31, 2016     446,667     $ 1.35            
                           
Options Granted     731,065     $ 2.68            
Options Exercised     -     $ -            
Options Forfeited     -     $ -            
Options Expired     -     $ -            
                           
Options Outstanding as of December 31, 2017     1,177,732     $ 2.17     8.9 Years   $ 4,330,481  
Options Exercisable as of December 31, 2017     491,035     $ 1.90     8.6 Years   $ 1,940,491  

  

The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $5.85 on December 31, 2017 and the exercise price of options, multiplied by the number of options. As of December 31, 2017, there was $1,547,443 total unrecognized stock-based compensation. Such costs are expected to be recognized over a weighted-average period of approximately 2.2 years.

 

The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following weighted-average assumptions were used to calculate stock-based compensation:

  

    Year Ended December 31,  
    2017     2016  
Expected term (years)   5 Years     5 Years  
Volatility   117.3-120.9 %     121.62 %
Risk-Free Interest Rate   2.0-2.4 %     2.5 %
Dividend Yield     0 %     0 %
                 

 

The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Hence, the Company uses the “simplified method” described in Staff Accounting Bulletin 107 to estimate the expected term of share option grants.

 

The expected stock price volatility assumption was determined by examining the historical volatilities for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available.

 

The risk-free interest rate assumption is based on the U.S. treasury instruments whose term was consistent with the expected term of the Company’s stock options.

 

The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the Company stock-based compensation.

 

The Company estimates the forfeiture rate at the time of grant and revisions, if necessary, were estimated based on management’s expectation through industry knowledge and historical data.

 

Stock-Based Compensation Expense

 

The following table sets forth the total stock-based compensation expense resulting from stock options and restricted grants of common stock to employees, directors and non-employee consultants in the consolidated statement of operations which are included in selling general and administrative expenses:

 

    For the Year Ended  
   

December 31,

2017

    

December 31,

2016

  
Type of Award   Number of Shares or Options Granted     Stock-Based Compensation Expense     Number of Shares or Options Granted     Stock-Based Compensation Expense  
                         
Stock Options     731,065     $ 692,971       446,667     $ 190,355  
                                 
Stock Grants:                                
Employees (Common Stock)     158,867       490,880       -       -  
Employees (Series B Preferred Stock)     40,000       1,035,406       430,113       2,451,220  
Directors (Common Stock)     81,061       221,973       71,381       334,424  
Non–Employee Consultants (Common Stock)     389,374       1,284,562       422,971       2,406,061  
                                 
Total Stock–Based Compensation Expense           $ 3,725,792             $ 5,382,060