Stock Based Compensation

 

Stock based compensation consists of the amortization of common stock, stock options and warrants issued for prepaid services. For the three months ended September 30, 2020 and 2019, stock based compensation amounted to $369,427 and $0, respectively. For the nine months ended September 30, 2020 and 2019, stock based compensation amounted to $619,176 and $1,762,736, respectively. Such expense is classified in selling, general and administrative expenses.

 

Common Stock

 

As of January 1, 2020, and pursuant to an advisory agreement dated as of November 20, 2019 and effective as of January 1, 2020 for a term of one year with a nonaffiliated third party, the Company issued 1,000,000 shares of common stock of the Company to such third party as and for the entire compensation to be paid for all services to be rendered during the term. These shares of common stock were valued at $200,000 in accordance with FASB ASC Topic 718. The fair value of the shares is being amortized to selling, general and administrative expenses within the Company’s condensed consolidated statements of operations over one year.

 

Stock Options

 

The Company accounts for stock-based compensation awards in accordance with the provisions of ASC 718, which addresses the accounting for employee stock options which requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the condensed consolidated financial statements over the vesting period based on the estimated fair value of the awards.

 

A summary of stock option activity for the nine months ended September 30, 2020 is presented below:

 

		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (years)				Aggregate Intrinsic Value
January 1, 2020			12,553,326			$	0.55				4.02			$	927
Grants			2,250,000				0.19				4.77
Expirations			(758,500	)			0.68				-
September 30, 2020			14,044,826			$	0.48				3.60			$	843,586
Options exercisable at:
September 30, 2020			13,919,826			$	0.49				3.59			$	823,586

 

The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $0.35 as of September 30, 2020, which would have been received by the option holders had all option holders exercised their options as of that date.

 

The Company utilized the Black-Scholes options pricing model to value its options granted. The assumptions used for options granted during the nine months ended September 30, 2020 and 2019 are as follows:

 

		September 30, 2020				September 30, 2019
Exercise price		$	0.19			$	0.27
Expected dividends			0	%			0	%
Expected volatility		103-84		%			100	%
Risk free interest rate		0.33–0.30		%			3	%
Expected life		5–4.12 years				5 years

 

On June 15, 2020, the Company granted nonqualified stock options to acquire an aggregate of 250,000 shares of the Company’s common stock under the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) to an employee. The options granted are exercisable at $0.19 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Plan. Fifty percent of the options are fully vested and exercisable as of the date of grant and fifty percent of the options vest on April 1, 2021. The options will expire five years from the date of grant. Based on a Black-Scholes valuation model, these options were valued at $37,882 in accordance with FASB ASC Topic 718 which will be expensed over the vesting period in selling, general and administrative expenses within the Company’s consolidated statements of operations.

 

On July 8, 2020, the Board of Directors of the Company approved an amendment to the 2017 Plan to increase the maximum number of shares of common stock that may be issued under the 2017 Plan from 8,000,0000 to 12,000,000 shares. On the same date, the Company granted nonqualified stock options to the following executive officers to each acquire 500,000 shares of the Company’s common stock: Richard MacPherson (President and Chief Executive Officer), John Pavlish (Senior Vice President and Chief Technology Officer) and James Trettel (Vice President of Operations); and, also granted nonqualified stock options to the following persons to each acquire 250,000 shares of the Company’s common stock: Christopher Greenberg (Chairman of the Board) and David M. Kaye (director). All of such options were granted under the 2017 Plan and are exercisable at $0.19 per share, representing the fair market value of the common stock on the date of grant as determined under the 2017 Plan. The options are fully vested and exercisable as of the date of grant and will expire five years thereafter. Based on a Black-Scholes valuation model, these options were valued at $246,965 in accordance with FASB ASC Topic 718 which was expensed on the grant date in selling, general and administrative expenses within the Company’s consolidated statements of operations.