Accounting for Stock-Based Compensation

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

Accounting for Stock-Based Compensation

3. Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, which requires that compensation related to all stock-based awards be recognized in the condensed consolidated financial statements. Stock-based compensation cost is valued at fair value at the date of grant, and the grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718.

During 2021, the Company added a new incentive plan (the “2021 Omnibus Incentive Plan”). The 2021 Omnibus Incentive Plan provides a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders.

The aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which awards may be granted under the 2021 Omnibus Incentive Plan shall not exceed 2,500,000 shares and is subject to any increase or decrease, which shares may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both.

During the three and six month periods ended June 30, 2022, the Company granted 131,580 new Restricted Stock Awards (RSAs) under the 2021 Omnibus Incentive Plan, compared to 27,540 similar awards in the same periods in 2021. The Company recognized $0.1 million of compensation expense related to its RSAs during the three month periods ended June 30, 2022, and 2021, respectively. The Company recognized $0.3 million and $0.1 million in compensation expense related to its RSAs during the six month periods ended June 30, 2022, and 2021, respectively. As of June 30, 2022, there was $0.5 million unrecognized compensation cost related to unvested RSAs compared to $0.3 million of unrecognized compensation cost related to unvested RSAs as of June 30, 2021.

During the three months ended March 31, 2022, the Company granted 167,500 stock options under its 2015 Stock Incentive Plan (“2015 Plan”). The Company granted no options under the 2015 Plan during the three months ended June 30, 2022, or the three and six month periods ended June 30, 2021. The Company issued no options under its 2005 Stock Incentive Plan (the “2005 Plan”) during the three and six month periods ended June 30, 2022, and 2021, respectively. During the three and six month periods ended June 30, 2022, the Company issued no options under the 2021 Omnibus Incentive Plan compared to 480,000 options granted under this plan during the three and six month periods ended June 30, 2021.

During the six months ended June 30, 2022, 96,500 stock options were exercised under the 2005 and 2015 Plans compared to 203,227 stock options were exercised in the six months ended June 30, 2021. During the three months ended June 30, 2022 and 2021, 5,000 and 6,000 stock options were exercised under the 2005 and 2015 Plans, respectively. 

The following table summarizes the activities for the Company’s stock options for the six months ended June 30, 2022: 

	June 30, 2022
	Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of year		617,273		$	6.47
Granted		167,500			3.64
Exercised		(96,000	)		0.68
Forfeited		(123,334	)		7.50
Expired		(4,334	)		9.26
Outstanding at June 30, 2022		561,105		$	6.23
Options exercisable at June 30, 2022		293,270		$	4.73

The Company recognized compensation expense related to its stock option awards of $0.4 million and $0.6 million, for the three and six month periods ended June 30, 2022, compared to $0.8 million and $1.0 million for the three and six month periods ended June 30, 2021. As of June 30, 2022, the total unrecognized compensation cost related to non-vested options not yet recognized in the condensed consolidated statement of operations totaled $0.8 million compared to a $5.1 million in the same period ending 2021.

Valuation Assumptions

The fair values of employee option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

	For Three Months Ended June 30, 2022		For Three Months Ended June 30, 2021		For Six Months Ended June 30, 2022		For Six Months Ended June 30, 2021
Weighted average grant date fair value	$	–	$	8.33	$	3.34	$	8.99
Weighted average assumptions used:
Expected dividend yield		0.0%		0.0%		0.0%		0.0%
Risk-free interest rate		0.0%		0.81%		0.88%		0.80%
Expected volatility		0.0%		83.00%		133.0%		81.81%
Expected life (in years)		–		5.0		6.6		5.0

Expected volatility is based on historical volatility and in part on implied volatility. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Options granted to non-employees are valued using the fair market value on each measurement date of the option.