Note 10 - Share-based Compensation

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

10.          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 September 30, 2022, there were 1,624,160 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 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 nine months ended September 30, 2022:

				Weighted Average
	Options on					Remaining		Aggregate
	Common			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding January 1, 2022		3,935,883		$	5.24		4.79
Granted		2,734,639		$	2.85
Exercised		(55,500	)	$	1.50
Forfeited, cancelled, expired		(978,709	)	$	5.48
Outstanding September 30, 2022		5,636,313		$	3.74		6.01	$	232,778
Exercisable September 30, 2022		2,507,744		$	4.47		2.14	$	232,778

At September 30, 2022, there were 4,022,083 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 Chief Executive Officer and President, subject to future market capitalization targets. 1,049,145 of the 4,013,885 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 Nine months
	Ended September 30,
	2022			2021
Expected stock price volatility		49	%		50	%
Risk-free interest rate		1.17	%		0.90	%
Expected dividend yield		0	%		0	%
Expected life of options - years		3.46			5.74
Weighted-average fair value of options granted	$	1.25		$	2.57

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 newly appointed Chief Executive Officer and a newly appointed 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 $308 and $1,448 for the three and nine months ended September 30, 2022 and was $1.302 and $4,310 for the three and nine months ended September 30, 2021, 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 nine months ended September 30, 2022:

				Weighted Average		Weighted Average
	Service-Based			Grant Date		Vesting
	RSU's			Fair Value		Period (Years)
Unvested at January 1, 2022		269,303		$	6.47
Granted - service based		753,817		$	2.57
Vested		(218,133	)	$	4.93
Forfeited and cancelled		(60,023	)	$	6.57
Unvested at September 30, 2022		744,964		$	2.97		2.32

A total of 175,173 RSUs 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.

RSU expense was $564 and $1,180 for the three and nine months ended September 30, 2022 and was $467 and $2,245 for the three and nine months ended September 30, 2021, 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,
	2022		2021		2022		2021
Selling, general and administrative	$	700	$	1,093	$	2,180	$	3,722
Research and development		172		210		448		588
Total share-based expense	$	872	$	1,303	$	2,628	$	4,310

As of September 30, 2022, total estimated compensation expense of stock options granted and outstanding but not yet vested was $3,820 which is expected to be recognized over the weighted average period of 3.5 years. As of September 30, 2022, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $1,828 which is expected to be recognized over the weighted average period of 2.3 years.