5.	Share-based Compensation

Service Vesting-Based Stock Options

The following is a summary of service vesting-based related stock option activity for the

nine

month period ended

September 30, 2018,

and the status of service vesting-based options outstanding at

September 30, 2018:

	Nine Month Period Ended
	September 30, 2018
				Wtd. Avg.
				Exercise
	Options			Price
Outstanding at beginning of year		2,390,012		$	1.85
Granted		—		$	—
Exercised		(267,055	)	$	1.30
Forfeited		(15,627	)	$	4.34
Expired		—		$	—
Outstanding service vesting-based at September 30, 2018		2,107,330		$	1.90

Service vesting-based options exercisable at September 30, 2018		1,622,980		$	1.83

We recognized stock compensation expense related to service vesting-based options of

$146,567

and

$146,355

during the

three

months ended

September 30, 2018

and

2017,

respectively, and

$448,882

and

$463,217

during the

nine

months ended

September 30, 2018

and

September 30, 2017,

respectively. As of

September 30, 2018,

there was

$32,868,498

of aggregate intrinsic value of outstanding service vesting-based stock options, including

$25,429,311

of aggregate intrinsic value of exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on

September 30, 2018.

This amount will change based on the fair market value of the Company’s stock. Intrinsic value of service vesting-based awards exercised during the

three

months ended

September 30, 2018

and

2017

was

$2,094,344

and

none,

respectively, and during the

nine

months ended

September 30, 2018

and

2017

was

$3,088,117

and

$91,817,

respectively. Weighted average grant date fair value for service based-vesting options granted during the

three

months ended

September 30, 2018

and

2017

was

none

and for the

nine

months ended

September 30, 2018

and

2017

was

none

and

$1.13

per share, respectively. The weighted average remaining contractual life of service vesting-based options outstanding and exercisable at

September 30, 2018,

5.8

years and

5.5

years, respectively. Total unrecognized compensation cost of service vesting-based stock options at

September 30, 2018

$678,908

is expected to be recognized over a weighted average period of

1.6

years.

Performance-based Stock Options

The Company’s Board of Directors implemented a Management Performance Bonus Plan for

2017.

Based on achieving varying levels of specified revenue for the year ended

December 31, 2017,

up to

1,000,000

options to purchase shares of the Company’s common stock

may

be vested. The options have an exercise price of

$1.64,

and if revenue levels for

2017

were met, would vest

50%

on the release of the Company’s audited financial statements for

2017,

and

50%

one

year thereafter. If the minimum performance targets were

not

achieved,

options would vest. On

February 27, 2018,

the Company’s Board of Directors determined that, subject to the completion of the

2017

audit, the specified revenue target had been achieved. Accordingly,

999,997

options to purchase shares of the Company’s common stock vest as follows:

50%

of the options vested on

March 8, 2018

and the remaining

50%

will vest on

March 8, 2019.

The following is a summary of performance-based stock option activity for the

nine

month period ended

September 30, 2018,

and the status of performance-based options outstanding at

September 30, 2018:

	Nine Month Period Ended
	September 30, 2018
				Wtd. Avg.
				Exercise
	Options			Price
Outstanding at beginning of year		999,997		$	1.64
Granted		—		$	—
Exercised		(35,000	)	$	1.64
Outstanding performance-based at September 30, 2018		964,997		$	1.64

Performance-based options exercisable at September 30, 2018		465,001		$	1.64

We recognized stock compensation expense related to performance-based options of

$128,296

and

$128,298

during the

three

month periods ending

September 30, 2018

and

2017,

respectively, and

$380,705

and

$380,708

during the

nine

month periods ending

September 30, 2018

and

2017,

respectively. As of

September 30, 2018,

there was

$15,304,852

of aggregate intrinsic value of outstanding performance-based stock options, including

$7,374,916

of aggregate intrinsic value of exercisable performance-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on

September 30, 2018.

This amount will change based on the fair market value of the Company’s stock. Intrinsic value of performance-based awards exercised during the

three

months and

nine

months ended

September 30, 2018

was

none

and

$285,250,

respectively, and

performance-based options were exercised in the

three

and

nine

months ended

September 30, 2017.

The weighted average remaining contractual life of performance-based options outstanding and exercisable at

September 30, 2018,

3.2

years. Total unrecognized compensation cost of performance-based stock options at

September 30, 2018

$128,296

is expected to be recognized over a weighted average period of

0.3

years.

The fair value of share-based payments made with stock options to employees and non-employee directors was estimated on the measurement date using the Black-Scholes model using the following weighted average assumptions.

Three Month Period Ended

Nine

Month Period Ended

September

30,

September

30,

2018

2017

2018

2017

Risk free interest rate

N/A

2.07

Dividend yield

N/A

0.0

Expected term (in years)

N/A

5.18

Volatility

N/A

Restricted Stock

The following is a summary of restricted stock activity for the

nine

month period ended

September 30, 2018,

and the status of unvested restricted stock outstanding at

September 30, 2018:

	Nine Month Period Ended
	September 30, 2018
	Number of Restricted Shares			Grant-Date Fair Value
Outstanding at beginning of year		237,926		$	1.79
Granted		181,268		$	7.02
Vested		(96,593	)	$	1.80
Forfeited		(21,128	)	$	3.32
Outstanding at September 30, 2018		301,473		$	4.82

The aggregate fair value of the awards granted during the

three

and

nine

months ended

September 30, 2018

was

$147,900

and

$1,272,948,

respectively, and during the

three

and

nine

months ended

September 30, 2017

was

none

and

$364,936,

respectively, which represents the market value of our common stock on the date that the restricted stock awards were granted. The aggregate fair value of the restricted stock awards that vested for the

three

months ended

September 30, 2018

and

2017

was

$392,858

and

$38,567,

respectively, and for the

nine

months ended

September 30, 2018

and

2017

was

$873,594

and

$99,725,

respectively.

We recognized stock compensation expense of

$108,277

and

$39,290

related to restricted stock awards for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$301,058

and

$113,786

related to restricted stock awards for the

nine

months ended

September 30, 2018

and

2017,

respectively. As of

September 30, 2018,

there was

$1,245,763

in unrecognized compensation costs related to restricted stock awards. We expect to recognize those costs over

3.2

years.

We recorded total stock compensation expense for the

three

and

nine

month periods ended

September 30, 2018

and

2017,

as follows:

	Three Month Period Ended				Nine Month Period Ended
	September 30,				September 30,
	2018		2017		2018		2017
Research and development costs	$	64,970	$	59,434	$	195,316	$	177,514
Sales and marketing costs		64,152		55,402		201,907		173,072
General and administrative costs		194,764		156,621		576,718		479,803
Cost of product sales		59,254		42,486		157,004		127,322
Total	$	383,140	$	313,943	$	1,130,945	$	957,711