Note 11 - Share-based Compensation

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

11.          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, the stockholders ratified an additional 1,900,000 shares of Common Stock; in June 2021, the stockholders ratified an additional 1,500,000 shares of Common Stock; and in June 2022, the stockholders ratified an additional 1,500,000 shares of Common Stock; for a total of 9,000,000 shares subject to the Plan. As of September 30, 2024, there were 275,422 shares of Common Stock remaining available for grant under the Plan.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2024:

				Weighted Average
	Options on Common Shares			Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding January 1, 2024		4,657,635		$	2.52		8.75	$	3,979
Granted		1,495,000		$	2.24		-		-
Exercised		(232,081	)	$	2.53		-		-
Forfeited, cancelled, expired		(1,928,925	)	$	3.00		-		-
Outstanding September 30, 2024		3,991,629		$	2.18		8.64	$	180
Exercisable September 30, 2024		1,200,536		$	3.33		6.96	$	40

As of September 30, 2024, there were 2,701,463 service-based stock options outstanding, and 1,290,166 performance-based stock options outstanding, which were granted in October 2023 to the Company's current Chief Executive Officer subject to future market capitalization targets.

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 Nine Months
	Ended September 30,
	2024			2023
Expected stock price volatility		76	%		49	%
Risk-free interest rate		3.79	%		3.64	%
Expected dividend yield		0	%		0	%
Expected life of options		6.00			6.66
Weighted-average fair value of options granted	$	1.48		$	0.55

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. 

Stock option expense was $341 and $776 for the three and nine months ended September 30, 2024, respectively, and $(169) and $399 for the three and nine months ended September 30, 2023, 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 vest. The following table summarizes RSU activity for the nine months ended September 30, 2024:

	Service-Based RSU's			Weighted Average Grant Date Fair Value		Weighted Average Vesting Period (Years)
Unvested at January 1, 2024		810,588		$	1.73		2.52
Granted - service based		800,336		$	2.71		-
Vested		(385,081	)	$	2.11		-
Forfeited and cancelled		(237,727	)	$	2.26		-
Unvested at September 30, 2024		988,116		$	2.26		3.26

The Company used the Monte Carlo Simulation Model to value at the grant date the aggregate of 632,911 market condition performance RSUs granted in January 2024 to the Company’s Chief Executive Officer. The assumptions used in the Monte Carlo Simulation were stock price on the date of grant of $3.40, a contract term of 10 years, expected volatility of 78% and risk-free interest rate of 4.10%. Vesting is based on sustained market capitalization of $1 billion, and the derived service period is 4.3 years.

RSU expense was $555 and $1,038 for the three and nine months ended September 30, 2024, respectively, and $(33) and $1,249 for the three and nine months ended September 30, 2023, 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 September 30,					Nine Months Ended September 30,
	2024		2023			2024		2023
Selling, general and administrative	$	878	$	(149	)	$	1,735	$	1,404
Research and development		18		(53	)		79		244
Total share-based expense	$	896	$	(202	)	$	1,814	$	1,648

As of September 30, 2024, total estimated compensation cost of stock options granted and outstanding but not yet vested was $2,657 which is expected to be recognized over the weighted average period of 2.50 years.

As of September 30, 2024, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $1,773, which is expected to be recognized over the weighted average period of 3.26 years.