Note 5 - Share-based Compensation

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note 5:    Share-Based Compensation

Description of Equity Plans

The 2011 Equity Incentive Plan (the “2011 Plan”) was adopted by the Company’s Board of Directors on April 28, 2011 and approved by the Company’s stockholders on June 15, 2011. The 2011 Plan serves as the successor to the Company’s 2006 Stock Option Plan (the “2006 Plan”). Since the effective date of the 2011 Plan, all equity awards were made from the 2011 Plan, and no additional awards will be granted under the 2006 plan. Under the 2011 Plan, 3,000,000 shares of the Company’s common stock were initially reserved for issuance pursuant to a variety of share-based compensation awards, plus any shares available for issuance under the 2006 Plan or are subject to awards under the 2006 Plan which are forfeited or lapse unexercised and which following the effective date are not issued under the 2006 Plan. In accordance with the provisions of the 2011 Plan, the Board of Directors approved an increase of 1,500,000 shares to the plan on January 1, 2019, and 2020.

At our 2021 Virtual Annual Meeting of Shareholders (“Annual Meeting”) held on June 11, 2021, shareholders approved the Company’s 2021 Equity Incentive Award Plan (the “2021 Plan”), which was adopted by the Board of Directors on April 9, 2021. The 2021 Plan increased the number of shares available for the grant of stock options, restricted stock awards and other awards by 3,000,000 in addition to the number of shares remaining available for the grant of new awards under the 2011 Plan as of April 16, 2021. The 2021 Plan became effective as of the date of the Annual Meeting and as of September 30, 2021, no additional awards were granted under the 2011 Plan.

As of  September 30, 2021, the Company had 4,824,215 stock options outstanding and an additional 4,363,386 shares of common stock available for grant under the 2021 Plan. As of  December 31, 2020, there were 4,638,390 stock options outstanding and 2,134,211 shares of common stock available for grant under the 2011 Plan.

Stock Options

Options are granted to purchase common stock at prices that are equal to the fair value of the common stock on the date the option is granted. Vesting is determined by the Board of Directors at the time of grant. The term of any stock option awards under the Company’s 2011 Plan and 2021 Plan is ten years, except for certain options granted to the contractors which are one or three years.

The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model and amortized on a straight-line basis over the requisite service period, which is generally the vesting period, for each separately vesting portion of the award as if the award was, in substance, multiple awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the following:

Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury rates with securities approximating the expected lives of options at the date of grant.

Expected dividend yield. The expected dividend yield is zero, as the Company has never paid dividends to common shareholders and does not currently anticipate paying any in the foreseeable future.

Expected stock price volatility. The expected stock price volatility was calculated based on the Company’s own volatility after the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatility since 2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure.

Expected life of option. The expected life of option was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The Company uses the weighted average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the options granted to the CEO (i.e., 5 or 10 years) and certain contractors (i.e., 2 or 3 years).

The assumptions used in the Black-Scholes option pricing model for stock options granted during the nine months ended September 30, 2021 are as follows:

Risk-Free interest rate	0.13% - 0.85%
Expected dividend yield	—%
Expected stock price volatility	54.52% - 60.53%
Expected life of options (in years)	2.00 - 6.25

The following table summarizes the stock option activities during the nine months ended September 30, 2021:

						Weighted-Average
				Weighted-Average		Remaining Contractual		Aggregate Intrinsic
	Shares			Exercise Price		Term (Years)		Value
Outstanding at December 31, 2020		4,638,390		$	2.44		5.64	$	13,701,610
Granted (1)		770,825			5.24
Exercised		(585,000	)		1.68
Expired		—			—
Canceled		—			—
Outstanding at September 30, 2021		4,824,215		$	2.98		6.14	$	12,537,900
Exercisable at September 30, 2021		3,500,516		$	2.37		5.28	$	11,191,507

_________________

Notes:

(1) Represents the following stock options granted:

• Annual share-based compensation awards on January 4, 2021, including: (a) 417,500 stock options with an exercise price of $5.16 per share granted to executives and key personnel, upon one year anniversary, or vesting annually in equal installments over four years, (b) 227,500 stock options with an exercise price of $5.16 per share granted to members of the Board of Directors, vesting upon one year anniversary, (c) 23,325 stock options with an exercise price of $5.16 per share granted to employees, vesting annually in equal installments over four years and (d) 5,000 stock options with an exercise price of $5.16 per share granted to a consultant, vesting upon one year anniversary.

• One-time award on January 8, 2021, 35,000 stock options with an exercise price of $5.50 per share granted to a new member of the Board of Directors, vesting in one year from the grant date.

• One-time award on January 21, 2021, 7,500 stock options with an exercise price of $5.65 per share granted to a consultant, vesting in one year from the grant date.

• One-time award on March 22, 2021, 30,000 stock options with an exercise price of $6.87 per share granted to a consultant, vesting in one year from the grant date.

• One-time award on August 24, 2021, 25,000 stock options with an exercise price of $4.96 per share granted to a consultant, vesting in one year from the grant date.

Compensation Expenses

We recognize all share-based payments to employees and our Board of Directors, as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations, and these charges had no impact on the Company’s reported cash flows. Stock-based compensation expense is calculated on the grant date fair values of such awards, and recognized each period based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.

Total non-cash stock option compensation expense was allocated among the following expense categories:    

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
General and administrative	$	405,383	$	354,264	$	1,183,568	$	1,125,217
Research and development		51,826		46,417		140,832		139,016
Total	$	457,209	$	400,681	$	1,324,400	$	1,264,233