Note 5 - Share-based Compensation

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 5:    Share-Based Compensation

Description of Equity Plans

The 2021 Equity Incentive Award Plan (the “2021 Plan”) was adopted by the Company's Board of Directors on April 9, 2021 and approved by the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) on June 11, 2021. The 2021 Plan serves as a successor to the Company’s 2011 Equity Incentive Plan (the “2011 Plan”). Since the adoption of the 2021 Plan, all equity awards were made from the 2021 Plan and no additional awards will be granted under the 2011 Plan. The 2021 Plan provides for the issuance of a variety of share-based compensation awards, including stock options, restricted stock awards, restricted stock unit awards, performance awards, dividend equivalents awards, deferred stock awards, stock payment awards and stock appreciation rights. As of April 16, 2021, the 2021 Plan increased the number of shares available for grant by 3,000,000 in addition to the number of shares remaining available for the grant of new awards under the 2011.

As of  March 31, 2023, the Company had 5,418,947 stock options outstanding and 163,044 unvested restricted stock units in addition to 2,873,706 shares of common stock available for grant under the 2021 Plan. As of  December 31, 2022, there were 5,031,097 stock options outstanding in addition to 3,672,561 shares of common stock available for grant under the 2021 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 either 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 since the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities 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., 1 or 3 years). 

The assumptions used in the Black-Scholes option pricing model for stock options granted during the three months ended March 31, 2023 are as follows:

Risk-Free interest rate	3.90% - 3.93%
Expected dividend yield	—%
Expected stock price volatility	62.2%
Expected life of options (in years)	5.50 - 6.25

The following table summarizes the stock option activities during the three months ended March 31, 2023:

						Weighted-Average
				Weighted-Average		Remaining Contractual		Aggregate Intrinsic
	Shares			Exercise Price		Term (Years)		Value
Outstanding at December 31, 2022		5,031,097		$	3.25		5.75	$	13,000
Granted (1)		707,850			1.38
Exercised		—			—
Expired (2)		(320,000	)		1.62
Canceled		—			—
Outstanding at March 31, 2023		5,418,947		$	3.10		6.40	$	642,791
Exercisable at March 31, 2023		4,004,318		$	3.18		5.46	$	359,651

_________________

Notes:

(1) Represents the following stock options granted:

• Annual share-based compensation awards on January 3, 2023, including: (a) 406,250 stock options with an exercise price of $1.38 per share granted to executives and key personnel, upon one year anniversary, or vesting annually in equal installments over four years, (b) 262,500 stock options with an exercise price of $1.38 per share granted to members of the Board of Directors, vesting upon one year anniversary, (c) 24,100 stock options with an exercise price of $1.38 per share granted to employees, vesting annually in equal installments over four years and (d) 15,000 stock options with an exercise price of $1.38 per share granted to a consultant, vesting upon one year anniversary.

(2) Represents the following stock options expired: 

• (a) 270,000 stock options with an exercise price of $1.39 per share granted to an executive, (b) 25,000 stock options with an exercise price of $1.75 per share granted to a member of the Board of Directors, and (c) 25,000 stock options with an exercise price of $3.99 per share granted to a consultant.

Restricted Stock Units

Restricted stock units (the “RSUs”) are granted subject to certain restrictions. Vesting conditions are determined at the discretion of the Board of Directors. The fair market value of RSUs is generally determined based on the closing market price of the stock on the grant date.

On  January 3, 2023, the Company granted 247,961 RSUs fully vested, to executives and key personnel in lieu of cash bonus earned for the year ended 2022. The Company also granted 163,044 RSUs, vesting upon one year anniversary of the grant, to the Board of Directors as a result of reduction in director cash compensation for 2023. The grant of these RSUs was approved by the Compensation Committee of the Board of Directors in  November 2022. The weighted average fair value for the RSUs is $1.38.

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. 

For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date.

Total non-cash share-based compensation expense was allocated among the following expense categories:

	Three Months Ended March 31,
	2023		2022
General and administrative	$	319,335	$	388,662
Research and development		11,304		65,129
Total	$	330,639	$	453,791

The following table summarizes the Company’s non-cash share-based compensation expenses: 

	Three Months Ended March 31,
	2023		2022
Share based compensation expense- stock options	$	276,540	$	453,791
Share based compensation expense- restricted stock units		54,099		—
Total	$	330,639	$	453,791