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Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

6. Stock-Based Compensation

The following table summarizes the activity for all stock options outstanding for the six months ended June 30:

	2021					2020
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Options outstanding at beginning of year		849,949		$	9.33		585,215		$	14.37
Granted		218,050			24.70		151,231			7.14
Exercised		(39,620	)		7.32		-			-
Forfeited		(4,866	)		7.67		(13,252	)		11.54
Balance at June 30		1,023,513		$	12.69		723,194		$	9.71

Options exercisable at June 30:		504,189		$	9.64		305,778		$	9.68

Weighted Average Grant Date Fair Value for options granted during the period:				$	16.39				$	4.55

The following table summarizes additional information about stock options outstanding and exercisable at June 30, 2021:

Options Outstanding								Options Exercisable
Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value		Options Exercisable		Weighted Average Exercise Price		Aggregate Intrinsic Value
	1,023,513		7.99	$	12.69	$	12,101,685		504,189	$	9.64	$	7,271,109

The Company recognized stock-based compensation expense for stock options of $520,361 and $414,272 for the three months ended June 30, 2021 and 2020, respectively and $938,553 and $864,937 for the six months ended June 30, 2021 and 2020, respectively. In May 2020, the Company modified the exercise price on 203,750 stock option awards to $5.10, the closing market price on the Nasdaq Capital Market on May 14, 2020. No director or officer awards were modified. The effect on stock-based compensation was $12,790 and $51,000 for the three months ended June 30, 2021 and 2020, respectively and $26,239 and $51,000 for the six months ended June 30, 2021 and 2020. The effect on stock-based compensation over the remaining service period will be approximately $109,000.

The Black-Scholes option-pricing model was used to estimate the fair value of equity-based awards with the following weighted-average assumptions for the six months ended June 30:

	2021	2020
Risk-free interest rate	0.63% - 1.14%	0.35% - 1.66%
Expected volatility	76.6% - 76.9%	73.3% - 74.4%
Expected life (years)	5.0 to 6.08	5.5 to 6.12
Expected dividend yield	0%	0%

The inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to the Company’s initial public offering, the price per share of common stock was determined by the Company’s board based on recent prices of common stock sold in private offerings. Subsequent to the initial public offering, the price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin Nos. 107 and 110. The expected volatility is estimated based on historical volatility information of peer companies that are publicly available in combination with the Company’s calculated volatility since being publicly traded.

All assumptions used to calculate the grant date fair value of non-employee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options issued in connection with the agreements would also be cancelled.

Restricted stock awards were granted to two members of the Company’s board during the three months ended June 30, 2021 and 2020. The Company had 2,964 and 15,686 shares of restricted stock outstanding as of June 30, 2021 and 2020, respectively, and 15,686 and 0 shares of restricted stock vested during the three months ended June 30, 2021 and 2020. The Company recognized stock-based compensation expense for restricted stock of $18,112 and $10,912 for the three months ended June 30, 2021 and 2020, respectively and $38,567 and $10,912 for the six months ended June 30, 2021 and 2020.

The Company initially reserved a maximum of 750,000 shares of common stock for issuance under the 2017 Amended and Restated Stock Incentive Plan (the “2017 Plan”). The number of shares reserved for issuance was automatically increased by 102,540 shares on January 1, 2020 and by 102,998 shares on January 1, 2021 and will increase automatically on January 1 of each of 2022 through 2027 by the number of shares equal to 1.0% of the aggregate number of outstanding shares of Company common stock as of the immediately preceding December 31. At the Annual Meeting held on May 12, 2021, the stockholders approved a one-time, 500,000 increase to the number of shares reserved for issuance under the 2017 Plan. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for grant under the Company’s 2017 Plan as of June 30, 2021 was 585,772.

Total unrecognized compensation cost related to stock options and restricted stock is estimated to be recognized as follows:

2021	$	1,247,486
2022		2,034,829
2023		1,476,348
2024		979,053
2025		246,916
Total estimated compensation cost to be recognized	$	5,984,632

The Company recognized stock-based compensation expense related to its employee stock purchase plan of $1,844 and ($1,991) for the three months ended June 30, 2021 and 2020, respectively and $12,295 and $11,993 for the six months ended June 30, 2021 and 2020, respectively. The Company initially reserved a total of 100,000 shares for issuance under the employee stock purchase plan.The number of shares reserved for issuance was automatically increased by 51,270 shares on January 1, 2020 and 51,499 shares on January 1, 2021 and will increase automatically on each subsequent January 1 by the number of shares equal to 0.5% of the total outstanding number of shares of Company common stock as of the immediately preceding December 31. However, the Company’s board may reduce the amount of the increase in any particular year. The total remaining shares available for issuance under the employee stock purchase plan as of June 30,2021 was 158,214.

The Company recognized total stock-based compensation expense as follows for the three and six months ended June 30:

	Three Months Ended				Six Months Ended
	2021		2020		2021		2020
Stock-based compensation expense in operating expenses:
Research and development	$	328,077	$	265,446	$	583,258	$	558,562
General and administrative		212,240		157,747		406,157		329,280
Total	$	540,317	$	423,193	$	989,415	$	887,842