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Note 6 - Share-based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Text Block]

Note 6: Share-Based Compensation

Description of Equity Plans

The 2021 Equity Incentive Award Plan (the “2021 Plan”) was adopted by the Company's Board of Directors on April 9, 2021, and approved by the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) on June 11, 2021. The 2021 Plan serves as a successor to the Company’s 2011 Equity Incentive Plan (the “2011 Plan”). Since the effective date of the 2021 Plan, all equity awards were made from the 2021 Plan, and no additional awards will be granted under the 2011 Plan. The 2021 Plan increased the number of shares available for the grant of stock options, restricted stock awards and other awards by 3,000,000 in addition to the number of shares remaining available for the grant of new awards under the 2011 Plan as of April 16, 2021.

As of December 31, 2021, the Company had 4,774,215 stock options outstanding and an additional 4,263,386 shares of common stock available for grant under the 2021 Plan. As of December 31, 2020, there were 4,638,390 stock options outstanding and an additional 2,134,211 shares of common stock available for grant under the 2011 Plan.

Stock Options

Options are granted to purchase common stock at prices that are equal to the fair value of the common stock on the date the option is granted. Vesting is determined by the Board of Directors at the time of grant. The term of any stock option awards under the Company’s 2011 Plan and 2021 Plan is ten years, except for certain options granted to the contractors which are either one or three years.

The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model and amortized on a straight-line basis over the requisite service period, which is generally the vesting period, for each separately vesting portion of the award as if the award was, in substance, multiple awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including the following:

Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury rates with securities approximating the expected lives of options at the date of grant.

Expected dividend yield. The expected dividend yield is zero, as the Company has never paid dividends to common shareholders and does not currently anticipate paying any in the foreseeable future.

Expected stock price volatility. The expected stock price volatility was calculated based on the Company’s own volatility since the DuPont Transaction. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities since 2016, as the DuPont Transaction resulted in significant changes in the Company’s business and capital structure.

Expected life of option. The expected life of option was based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The Company uses the weighted average vesting period and contractual term of the option as the best estimate of the expected life of a new option, except for the options granted to the CEO (i.e., 5 or 10 years) and certain contractors (i.e., 1 or 3 years).

The assumptions used in the Black-Scholes option pricing model for stock options granted for the years ended December 31, 2021 and 2020 are as follows:

	*Years Ended December 31,*
	*2021*		*2020*
Risk-free interest rate		0.05% - 1.24%		0.25% - 1.72%
Expected dividend yield		—%		—%
Expected stock price volatility		54.52% - 60.80%		39.94% - 51.22%
Expected life of options	0.5 - 6.25 Years		1.75 - 6.25 Years

The following table summarizes the combined stock option activity under the Company’s Equity Compensation Plans:

						*Weighted-*
						*Average*
				*Weighted-*		*Remaining*		*Aggregate*
				*Average*		*Contractual*		*Intrinsic*
	*Shares*			*Exercise Price*		*Term (Years)*		*Value*
Outstanding at December 31, 2019		3,860,390		$	1.76		5.69	$	13,287,932
Granted		913,000			5.24
Exercised		(135,000	)		1.89
Expired		—			—
Canceled		—			—
Outstanding at December 31, 2020		4,638,390		$	2.44		5.64	$	13,701,610
Granted ⁽¹⁾		870,825			5.11
Exercised ⁽²⁾		(735,000	)		1.67
Expired		—			—
Canceled		—			—
Outstanding at December 31, 2021		4,774,215		$	3.04		6.14	$	8,413,444

Exercisable at December 31, 2021		3,384,516		$	2.45		5.21	$	7,674,636

Notes:

(1) Represents the following stock options granted:

	•	Annual share-based compensation awards on January 4, 2021, including: (a) 417,500 stock options with an exercise price of $5.16 per share granted to executives and key personnel, upon one year anniversary, or vesting annually in equal installments over four years, (b) 227,500 stock options with an exercise price of $5.16 per share granted to members of the Board of Directors, vesting upon one year anniversary, (c) 23,325 stock options with an exercise price of $5.16 per share granted to employees, vesting annually in equal installments over four years and (d) 5,000 stock options with an exercise price of $5.16 per share granted to a consultant, vesting upon one year anniversary.
	•	One-time award on January 8, 2021, 35,000 stock options with an exercise price of $5.50 per share granted to a new member of the Board of Directors, vesting in one year from the grant date.
	•	One-time award on January 21, 2021, 7,500 stock options with an exercise price of $5.65 per share granted to a consultant, vesting in one year from the grant date.
	•	One-time award on March 22, 2021, 30,000 stock options with an exercise price of $6.87 per share granted to a consultant, vesting in one year from the grant date.
	•	One-time award on August 24, 2021, 25,000 stock options with an exercise price of $4.96 per share granted to a consultant, vesting in one year from the grant date.
	•	One-time award on November 1, 2021, 25,000 stock options with an exercise price of $4.14 per share granted to a consultant, vesting in one year from the grant date.
	•	One-time award on November 9, 2021, 75,000 performance-based stock options with an exercise price of $4.10 per share granted to a new executive, vesting upon the achievement of specific performance conditions. As of December 31, 2021. the Company believes that the achievement of the requisite performance conditions is not probable and, as a result, no compensation cost has been recognized for these awards.

(2) Represents the following stock options exercised:

•

500,000 stock options exercised at $1.67, 150,000 stock options exercised at $1.63, 60,000 stock options exercised at $1.93, and 25,000 stock options exercised at $1.39.

The weighted average grant-date fair market value of stock options granted for the years ended December 31, 2021 and 2020 was $2.49 and $2.09 respectively, based on the Black-Scholes option pricing model. The intrinsic value of options exercised for the years ended December 31, 2021 and 2020 was $1,729,850 and $481,139, respectively.

As of December 31, 2021 and 2020, total unrecognized compensation cost related to non-vested stock options granted under the Company’s equity compensation plans was $856,982 and $477,232, respectively, which is expected to be recognized over a weighted average period of 3.07 years and 2.84 years, respectively. The Company will adjust unrecognized compensation cost for actual forfeitures as they occur.

Compensation Expenses

We recognize all share-based payments to employees, consultants, and our Board, as non-cash compensation expense, in research and development expenses or general and administrative expenses in the consolidated statement of operations, and these charges had no impact on the Company’s reported cash flows. Stock-based compensation expense is calculated on the grant date fair values of such awards, and recognized each period based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Forfeitures are recorded as they occur.

For performance-based awards, the Company recognizes related stock-based compensation expenses based upon its determination of the potential likelihood of achievement of the specified performance conditions at each reporting date. There was no performance-based award recognized during the years ended December 31, 2021 and 2020.

Total non-cash stock option compensation expense was allocated among the following expense categories:

	*Years Ended December 31,*
	*2021*		*2020*
General and administrative	$	1,571,328	$	1,466,461
Research and development		212,774		185,432
Total	$	1,784,102	$	1,651,893