Note 9 - Share-based Compensation

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

9.          SHARE-BASED COMPENSATION

On March 31, 2017, the Company adopted, and the stockholders approved, the 2017 Stock Incentive Plan (the “Plan”) authorizing 2,000,000 shares of Common Stock for issuance as awards to employees, directors or consultants. In May 2019, the stockholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock; in June 2020 ratified an additional 1,900,000 shares of Common Stock; in June 2021 ratified an additional 1,500,000 shares of Common Stock; and in June 2022 ratified an additional 1,500,000 shares of Common Stock; for a total of 9,000,000 shares subject to the Plan. At June 30, 2023, there were 2,848,936 shares of Common Stock remaining available for grant under the Plan.

The Company generally recognizes share-based compensation expense on the grant date and over the period of vesting or period that services will be provided. In April 2023 the Company recognized severance acceleration of $178 of share-based compensation expense resulting from the resignation of the Company’s Chief Executive Officer and Chief Operating Officer due to a reduction in force that resulted in changes in the composition of the executives of the Company. In January 2022 the Company recognized severance acceleration of $242 of share-based compensation expense resulting from the resignation of the Company’s Chief Executive Officer as part of a management transition plan.

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2023:

				Weighted Average
	Options on Common Shares			Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding January 1, 2023		5,491,399		$	3.72		5.96	$	92
Granted		60,000		$	1.34
Exercised		(250	)	$	1.5
Forfeited, cancelled, expired		(1,982,900	)	$	4.14
Outstanding June 30, 2023		3,568,249		$	3.37		8.08	$	7
Exercisable June 30, 2023		1,052,714		$	4.56		6.79	$	0

At June 30, 2023, there were 1,954,019 service-based stock options outstanding, and 1,614,230 performance-based stock options outstanding, which performance-based stock options were granted in April 2022 to the Company’s former Chief Executive Officer and President, subject to future market capitalization targets. 1,049,145 of the 3,568,249 stock options granted included in the table above were granted in April 2022 outside the Plan as an employment inducement grant, but are subject to the terms and conditions of the Plan.

The Company uses the Black-Scholes option pricing model to determine the fair value of service-based options granted. The following table summarizes the assumptions used to compute the fair value of options granted to employees and non-employees:

	For the Six Months
	Ended June 30,
	2023			2022
Expected stock price volatility		49	%		49	%
Risk-free interest rate		3.64	%		1.09	%
Expected life of options		6.66			1.82
Weighted-average fair value of options granted	$	0.55		$	1.32

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price. The Company records forfeitures as they are incurred.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock options as the Company does not have sufficient historical exercise data.

The Company used the Monte Carlo Simulation Model to value at the grant date the aggregate of 1,614,230 market condition performance options granted in April 2022 to the Company’s former Chief Executive Officer and President. The assumptions used in the Monte Carlo Simulation were stock price on date of grant of $2.89, contract term of 10 years, expected volatility of 49% and risk-free interest rate of 2.9%. Vesting is based on sustained market capitalization of $250 million, $500 million and $1 billion and resulted in implied service periods ranging from approximately 4 to 7 years.

Stock option expense was $255 and $567 for the three and six months ended June 30, 2023, respectively, and $408 and $1,145 for the three and six months ended June 30, 2022, respectively.

Restricted Stock Units

The Plan provides for the grant of restricted stock units (“RSUs”). RSUs are settled in shares of the Company’s Common Stock as the RSUs become vested. The following table summarizes RSU activity for the six months ended June 30, 2023:

	Service-Based RSU's			Weighted Average Grant Date Fair Value		Weighted Average Vesting Period (Years)
Unvested at January 1, 2023		922,057		$	2.88		2.11
Granted - service based		625,896		$	1.31
Vested		(734,444	)	$	2.87
Forfeited and cancelled		(264,172	)	$	2.49
Unvested at June 30, 2023		549,337		$	2.03		1.88

RSU expense was $966 and $1,282 for the three and six months ended June 30, 2023, respectively, and $319 and $611 for the three and six months ended June 30, 2022, respectively.

Share-Based Compensation Expense

The Company recorded share-based compensation for options and RSUs in its statements of operations for the relevant periods as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Selling, general and administrative	$	990	$	591	$	1,552	$	1,485
Research and development		231		136		297		271
Total share-based expense	$	1,221	$	727	$	1,849	$	1,756

As of June 30, 2023, total estimated compensation cost of stock options granted and outstanding but not yet vested was $2,609 which is expected to be recognized over the weighted average period of 3.12 years.

As of June 30, 2023, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $1,115 which is expected to be recognized over the weighted average period of 1.82 years.