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EQUITY COMPENSATION
 3 Months Ended
Mar. 31, 2021
Share-Based Payment Arrangement [Abstract]  
EQUITY COMPENSATION

7. EQUITY COMPENSATION

 

The Company accounts for the issuance of equity awards to employees in accordance with ASC Topic 718, which requires that the cost resulting from all equity payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for equity payment arrangements and requires all companies to apply a fair value based measurement method in accounting for all equity payment transactions with employees. All equity compensation is included in operating expenses for the periods as follows:

 

   Three Months Ended 
   March 31, 
   2021   2020 
Compensation cost recognized:          
Selling, general & administrative  $4,271,792   $79,289 
Research & development   273,223    6,753 
   $4,545,015   $86,042 

 

Stock Options

 

The Company uses the Black-Scholes option pricing model to value the options on the grant date. The expected life computation is based on the time to option expiration. For the awards which were modified and are no longer classified as equity awards, the Company uses the share price as of each reporting period to calculate the fair value of the options. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

 

As discussed above, certain option awards no longer qualify as equity awards and instead are classified as liability awards. The fair value of these awards are determined at each reporting period utilizing a Black Scholes option pricing model, and the associated compensation expense for the reporting period is recorded. The Company recorded $3,564,382 of additional compensation expense in the first quarter of 2021 as a result of this award reclassification.

 

Stock option activity under the 2015 Stock Option Plan (the “Plan”) during the period indicated below were as follows:

 

   Number of Shares Subject to Issuance   Weighted-average Exercise Price   Weighted-average Remaining Contractual Term   Aggregate Intrinsic Value 
                 
Outstanding at December 31, 2020   637,882   $2.50    2.55 years   $5,686,421 
Granted   221,843    10.38           
Exercised   (332,301)   2.37           
Outstanding at March 31, 2021   527,424   $5.89    3.58 years   $1,768,591 
                     
Exercisable at March 31, 2021   160,860   $         2.59    2.27 years   $932,022 

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on March 31, 2021. This amount changes based upon the fair market value of the Company’s stock.

 

 

Restricted Stock Units

 

The Company issues Restricted Stock Units (“RSUs”) which are equity-based instruments that may be settled in shares of common stock of the Company. During the three months ended March 31, 2021, the Company issued RSUs to its officers and certain employees and to certain directors as compensation. RSU agreements can vest immediately or with the passage of time. The vesting of all RSUs is contingent on continued board and employment services.

 

The compensation expense incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period and charged to general and administrative expense with a corresponding increase to additional paid-in capital.

 

   Number of
Shares		   Weighted
Average
Grant Date
Fair Value		   Aggregate
Intrinsic
Value		 
             
Outstanding at December 31, 2020   1,754   $11.40   $- 
Granted   405,576    10.62      
Vested and settled in shares   (1,754)   11.40      
                
Outstanding at March 31, 2021   405,576   $10.62   $11,568 

 

Performance Stock Units

 

On August 7, 2020, the Company issued 265,942 Performance Stock Units (PSUs) to its officers and certain employees as compensation. For these PSU agreements, 50% vest based on the Company’s market price and 50% vest based on its Adjusted EBITDA performance metric. Both the conditions are to occur over a passage of a specified time and is contingent on continued employment services.

 

For the market condition, compensation expense is based on a Geometric Brownian Motion valuation model based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite period. For the performance condition, the Company reviews the probability of achieving this goal on a periodic basis. If the Company determines that it is probable that the performance criteria will be achieved, the amount of compensation cost derived for this performance metric is amortized over the anticipated service period. If these criteria are not met, no compensation cost is recognized and any previously recognized compensation cost would be reversed. For both conditions, compensation expense is charged to selling, general and administrative and research and development expense with a corresponding increase to additional paid-in capital.

 

   Number of
Shares		   Weighted
Average
Grant Date
Fair Value		   Aggregate
Intrinsic
Value		 
             
Outstanding at December 31, 2020   265,942   $7.91   $- 
Granted and Vested   -    -      
                
Outstanding at March 31, 2021   265,942   $7.91   $         - 

 

 

As of March 31, 2021, there was 5,951,407 of total unrecognized compensation cost, net of estimated forfeitures, related to all unvested stock options, RSUs and PSUs, which is expected to be recognized over a weighted average period of approximately 2.69 years.

 

The Company had 714,782 shares available for future grants under the Plan at March 31, 2021.

 

 

Warrants

 

All previously granted warrants were issued with an exercise price that was equal to or above the fair market value of the Company’s common stock on the date of grant. As of March 31, 2021, the Company had 12,680 warrants outstanding with an exercise price of $2.20 which are exercisable through 2021. During the three months ended March 31, 2021, no warrants were exercised.