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Note 6 - Share-based Compensation | 6 Months Ended
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Jun. 30, 2024
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 June 30, 2024, the Company had 5,830,222 stock options outstanding and 117,925 unvested restricted stock units in addition to 2,040,004 shares of common stock available for grant under the 2021 Plan. As of December 31, 2023, there were 5,469,247 stock options outstanding and 243,044 unvested restricted stock units in addition to 2,773,406 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 since the DuPont Transaction in 2015. 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 six months ended June 30, 2024 are as follows:
Risk-Free interest rate |  |  | 3.93% - 4.61% |
Expected dividend yield |  |  | —% |
Expected stock price volatility |  |  | 63.31% |
Expected life of options (in years) |  |  | 5.50-6.25 |
The following table summarizes the stock option activities for the six months ended June 30, 2024:
|  |  |  |  |  |  |  |  |  | Weighted-Average |  |  |  |  |
|  |  |  |  |  | Weighted-Average |  |  | Remaining Contractual |  |  | Aggregate Intrinsic |
|  | Shares |  |  | Exercise Price |  |  | Term (Years) |  |  | Value |
Outstanding at December 31, 2023 |  |  | 5,469,247 |  |  | $ | 3.08 |  |  |  | 5.66 |  |  | $ | 322,738 |
Granted (1) |  |  | 812,600 |  |  |  | 1.60 |  |  |  |  |  |  |  |  |
Exercised |  |  | (30,000 | ) |  |  | 1.36 |  |  |  |  |  |  |  |  |
Expired (2) |  |  | (358,500 | ) |  |  | 2.10 |  |  |  |  |  |  |  |  |
Canceled (3) |  |  | (63,125 | ) |  |  | 1.59 |  |  |  |  |  |  |  |  |
Outstanding at June 30, 2024 |  |  | 5,830,222 |  |  | $ | 2.96 |  |  |  | 5.83 |  |  | $ | 138,360 |
Exercisable at June 30, 2024 |  |  | 4,430,623 |  |  | $ | 3.20 |  |  |  | 4.89 |  |  | $ | 109,383 |
_________________ Notes: (1) Represents the following options granted:
| • | Annual share-based compensation awards on January 2, 2024, with an exercise price of $1.59, including: (a) 387,500 stock options granted to executives and key personnel, vesting upon one year anniversary, or annually in equal installments over four years, (b) 352,500 stock options granted to members of the Board of Directors, vesting upon one year anniversary, (c) 17,600 stock options granted to employees, vesting annually in equal installments over four years, and (d)15,000 stock options granted to a consultant, vesting upon one year anniversary.
| • | One-time awards on April 11, 2024, with an exercise price of $1.84, including 20,000 stock options granted to an executive, vesting annually in equal installments over four years, and 20,000 stock options granted to a member of the Board of Directors, vesting upon one year anniversary.
(2) Represents the following options expired:
|  | (a) 300,000 stock options with an exercise price of $1.87 per share granted to an executive, (b) 25,000 stock options with an exercise price of $1.76 per share granted to a member of the Board of Directors, (c) 7,500 stock options with an exercise price of $5.56 per share granted to a consultant, (d) 25,000 stock options with an exercise price of $4.14 per share granted to a consultant, and (e) 1,000 stock options with an exercise price of $1.55 per share granted to an employee.
(3) Represents the following options canceled:
|  | (a) 50,000 stock options granted to a former Board of Directors, (b) 13,125 stock options granted to the Company's former Chairman of the Board of Directors.
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 for the six months ended June 30, 2024:
|  |  |  |  |  | Weighted-Average |
|  |  |  |  |  | Grant Date |
|  | Shares |  |  | Fair Value |
Outstanding at December 31, 2023 |  |  | 213,044 |  |  | $ | 1.43 |
Granted (1) |  |  | 354,219 |  |  |  | 1.60 |
Vested (2) |  |  | (437,546 | ) |  |  | 1.52 |
Unvested shares forfeited (3) |  |  | (11,792 | ) |  |  | 1.59 |
Outstanding at June 30, 2024 |  |  | 117,925 |  |  | $ | 1.59 |
_________________ Notes:
(1) |  | On March 13, 2024, the Company granted 212,709 RSUs with immediate vesting, to executives and key personnel in lieu of cash bonuses earned for the year ended 2023. On January 2, 2024, the Company granted 141,510 RSUs, vesting upon one year anniversary of the grant, to the Board of Directors. The fair value of the common stock is the Company's closing stock price on the grant date as reported on the Nasdaq Stock Exchange.
(2) |  | Represents 212,709 RSUs granted to executives and key personnel, 174,837 RSUs granted to the Board of Directors, and 50,000 RSUs granted to a contractor.
(3) |  | Represents the cancellation of RSUs granted to a former member of the Board of Directors.
Compensation Expenses We recognize all share-based payments to employees and our Board of Directors, 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 the three and six months ended June 30, 2024, there were forfeitures of $20,000 and $40,000, respectively. 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. Total non-cash share-based compensation expense was allocated among the following expense categories:
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
General and administrative |  | $ | 285,372 |  |  | $ | 323,796 |  |  | $ | 579,406 |  |  | $ | 643,132 |
Research and development |  |  | 12,231 |  |  |  | 10,520 |  |  |  | 24,675 |  |  |  | 21,823 |
Total |  | $ | 297,603 |  |  | $ | 334,316 |  |  | $ | 604,081 |  |  | $ | 664,955 |
The following table summarizes the Company’s non-cash share-based compensation expense allocation between options and restricted stock units:
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Share based compensation expense - stock option |  | $ | 243,538 |  |  | $ | 278,373 |  |  | $ | 433,807 |  |  | $ | 554,914 |
Share based compensation expense - restricted stock units |  |  | 54,065 |  |  |  | 55,943 |  |  |  | 170,274 |  |  |  | 110,041 |
Total |  | $ | 297,603 |  |  | $ | 334,316 |  |  | $ | 604,081 |  |  | $ | 664,955 |

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