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Note 6 - Share-based Compensation

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

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 adoption 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 provides for the issuance of a variety of share-based compensation awards, including stock options, restricted stock awards, restricted stock unit awards, performance awards, dividend equivalents awards, deferred stock awards, stock payment awards and stock appreciation rights. As of April 16, 2021, the 2021 Plan increased the number of shares available for grant by 3,000,000 in addition to the number of shares remaining available for the grant of new awards under the 2011.

As of December 31, 2023, the Company had 5,469,247 stock options outstanding and an additional 2,773,406 shares of common stock available for grant under the 2021 Plan. As of December 31, 2022, there were 5,031,097 stock options outstanding and an additional 3,672,561 shares of common stock available for grant under the 2021 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. The Company reviews its volatility assumption on an annual basis and has used the Company’s historical volatilities.

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, 2023 and 2022 are as follows:

		*Years Ended December 31,*
		*2023*				*2022*
Risk-free interest rate			3.90% -5.12%				1.40% - 3.24%
Expected dividend yield			—%				—%
Expected stock price volatility			62.22% - 64.27%				61.30% - 61.58%
Expected life of options (in years)			1.13 -6.25				5.5 - 6.25

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, 2021			4,774,215			$	3.04				6.14			$	8,413,444
Granted			865,825				4.43
Exercised			(333,943	)			1.63
Expired			(200,000	)			5.47
Canceled			(75,000	)			4.81
Outstanding at December 31, 2022			5,031,097			$	3.25				5.75			$	13,000
Granted ⁽¹⁾			805,350				1.45
Exercised			—				—
Expired ⁽²⁾			(351,520	)			1.71
Canceled ⁽³⁾			(15,680	)			3.50
Outstanding at December 31, 2023			5,469,247			$	3.08				5.66			$	322,738

Exercisable at December 31, 2023			4,160,298			$	3.15				4.81			$	161,427

Notes:

(1) Represents the following stock options granted:

	•	Annual share-based compensation awards on January 3, 2023, including: (a) 406,250 stock options with an exercise price of $1.38 per share granted to executives and key personnel, upon one year anniversary, or vesting annually in equal installments over four years, (b) 262,500 stock options with an exercise price of $1.38 per share granted to members of the Board of Directors, vesting upon one year anniversary, (c) 24,100 stock options with an exercise price of $1.38 per share granted to employees, vesting annually in equal installments over four years, and (d) 15,000 stock options with an exercise price of $1.38 per share granted to a consultant, vesting upon one year anniversary.
	•	Throughout the year the following stock options were granted: (a) on May 30, 2023, 37,500 stock options with an exercise price of $2.23 per share granted to a consultant, vesting over two months from the grant date, (b) on September 15, 2023, 55,000 stock options with an exercise price of $1.75 per share granted to a consultant, vesting over a year and half from the grant date, and (c) on October 23, 2023, 5,000 stock options with an exercise price of $1.66 per share granted to an employee vesting annually in equal installments over four years.

(2) Represents the following stock options expired:

•

270,000 stock options with an exercise price of $1.39 per share granted to executive, (b) 25,000 stock options with an exercise price of $3.99 per share granted to a consultant, (c) 25,000 stock options with an exercise price of $1.75 per share granted to a member of the Board of Directors, (d) 31,520 stock options with an exercise price ranging between $1.39 and $5.27 per share granted to a former employee.

(3) Represents the cancellation of unvested portion of the stock options granted previously to a former employee with exercise price ranging between $1.39 to $5.27.

The weighted average grant-date fair market value of stock options granted for the years ended December 31, 2023 and 2022 was $0.81 and $2.49, respectively, based on the Black-Scholes option pricing model. The intrinsic value of options exercised for the years ended December 31, 2023 and 2022 was $0 and $365,000, respectively.

As of December 31, 2023 and 2022, total unrecognized compensation cost related to non-vested stock options granted under the Company’s equity compensation plans was $559,121 and $919,000, respectively, which is expected to be recognized over a weighted average period of 2.68 years and 2.76 years, respectively. The Company adjusts unrecognized compensation cost for actual forfeitures as they occur.

Restricted Stock Units

Restricted stock units (the “RSUs”) are granted subject to certain restrictions. Vesting conditions are determined at the discretion of the Board of Directors. The fair market value of RSUs is generally determined based on the closing market price of the stock on the grant date.

The following table summarizes the restricted stock award activity during the year ended December 31, 2023:

						*Weighted-Average*
						*Grant Date*
		*Shares*				*Fair Value*
Outstanding at December 31, 2022			—			$	—
Granted ⁽¹⁾			461,005				1.38
Vested ⁽¹⁾			(247,961	)			1.38
Outstanding at December 31, 2023			213,044			$	1.38

Notes:

(1) On January 3, 2023, the Company granted 247,961 RSUs with immediate vesting, to executives and key personnel in lieu of cash bonuses earned for the year ended 2022. The Company also granted 163,044 RSUs, vesting upon one year anniversary of the grant, to the Board of Directors as a result of the Board agreeing to a reduction in director cash compensation for 2023. On December 6, 2023, the Company granted 50,000 RSUs to a consultant, vesting at the end of the service period.

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, 2023 and 2022.

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

		*Years Ended December 31,*
		*2023*				*2022*
General and administrative		$	1,201,027			$	1,661,025
Research and development			43,094				227,919
Total		$	1,244,121			$	1,888,944

The following table summarizes the Company’s non-cash share-based compensation expenses:

		Years Ended December 31,
		2023				2022
Share based compensation expense- stock options		$	1,004,054			$	1,888,944
Share based compensation expense- restricted stock units			240,067				—
Total		$	1,244,121			$	1,888,944