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Note 9 - Stock-based Compensation Expense | 9 Months Ended
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Sep. 30, 2022
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] |
NOTE 9: | STOCK-BASED COMPENSATION EXPENSE
The Company recorded $118,548 and $307,379 during the three and nine months ended September 30, 2022, respectively, and recorded $105,491 and $217,942 during the three and nine months ended September 30, 2021, respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments. The following table summarizes the compensation expense recorded for the three and nine months ended September 30, 2022 and 2021 related to stock-based compensation.
|  | Three months ended September 30, |  |  | Nine months ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Cost of revenue |  | $ | 9,221 |  |  | $ | 7,715 |  |  | $ | 26,100 |  |  | $ | 7,715 |
Research and development |  |  | 16,367 |  |  |  | 3,972 |  |  |  | 42,684 |  |  |  | 3,972 |
Selling and shipping |  |  | 7,508 |  |  |  | 4,371 |  |  |  | 18,305 |  |  |  | 4,371 |
General and administrative |  |  | 85,452 |  |  |  | 89,433 |  |  |  | 220,290 |  |  |  | 201,884 |
Total |  | $ | 118,548 |  |  | $ | 105,491 |  |  | $ | 307,379 |  |  | $ | 217,942 |
A summary of the stock option activity related to the 2007 Share Incentive Plan, the 2016 Equity Incentive Plan and the 2022 Equity Incentive Plan for the period from January 1, 2022 through September 30, 2022 are as follows:
2007 Share Incentive Plan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Beginning |  |  | Granted |  |  | Exercised |  |  | Canceled |  |  | Ending |  |  |  |  |
|  | Balance |  |  | During |  |  | During |  |  | During |  |  | Balance |  |  |  |  |
|  | Outstanding |  |  | Period |  |  | Period |  |  | Period |  |  | Outstanding |  |  | Exercisable |
Number of shares |  |  | 220,000 |  |  |  | - |  |  |  | - |  |  |  | (75,000 | ) |  |  | 145,000 |  |  |  | 145,000 |
Weighted average exercise price per share |  | $ | 12.56 |  |  |  | - |  |  |  | - |  |  | $ | 15.00 |  |  | $ | 11.29 |  |  | $ | 11.29 |
2016 Equity Incentive Plan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Beginning |  |  | Granted |  |  | Exercised |  |  | Canceled |  |  | Ending |  |  |  |  |
|  | Balance |  |  | During |  |  | During |  |  | During |  |  | Balance |  |  |  |  |
|  | Outstanding |  |  | Period |  |  | Period |  |  | Period |  |  | Outstanding |  |  | Exercisable |
Number of shares |  |  | 398,500 |  |  |  | 102,500 |  |  |  | - |  |  |  | (44,000 | ) |  |  | 457,000 |  |  |  | 145,500 |
Weighted average exercise price per share |  | $ | 4.43 |  |  | $ | 4.97 |  |  |  | - |  |  | $ | 4.25 |  |  | $ | 4.56 |  |  | $ | 4.94 |
2022 Equity Incentive Plan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Beginning |  |  | Granted |  |  | Exercised |  |  | Canceled |  |  | Ending |  |  |  |  |
|  | Balance |  |  | During |  |  | During |  |  | During |  |  | Balance |  |  |  |  |
|  | Outstanding |  |  | Period |  |  | Period |  |  | Period |  |  | Outstanding |  |  | Exercisable |
Number of shares |  |  | - |  |  |  | 76,000 |  |  |  | - |  |  |  | - |  |  |  | 76,000 |  |  |  | - |
Weighted average exercise price per share |  |  | - |  |  | $ | 5.13 |  |  |  | - |  |  |  | - |  |  | $ | 5.13 |  |  |  | - |
In August 2022, the shareholders of the Company approved the 2022 Equity Incentive Plan that provides for the issuance of stock options and restricted stock for up to 515,000 shares. As of September 30, 2022, there were 47,698 shares available for grant under the 2016 Equity Incentive Plan and 439,000 shares available for grant under the 2022 Equity Incentive Plan. For the nine months ended September 30, 2022, the Company granted 178,500 stock options, vesting 25% per year over four years, with a ten-year life. The Company determined the weighted average fair value of stock options granted during the nine months ended September 30, 2022 was $3.17 and is based upon weighted average assumptions below.
Stock Price |  | $ | 5.04 |
Exercise Price |  | $ | 5.04 |
Dividend yield |  |  | 0 | %
Expected volatility |  |  | 68 | %
Risk-Free interest rate |  |  | 2.96 | %
Expected life (in years) |  |  | 6.00 |
The Company has a total of 678,000 outstanding stock options, of which 290,500 were exercisable, under the three plans at September 30, 2022.
The following table summarizes information about the outstanding and exercisable options at September 30, 2022 by ranges of exercise prices:
|  |  |  |  | Options Outstanding |  |  | Options Exercisable |
|  |  |  |  |  |  |  |  | Weighted |  |  | Weighted |  |  |  |  |  |  |  |  |  |  | Weighted |  |  |  |  |
|  |  |  |  |  |  |  |  | Average |  |  | Average |  |  |  |  |  |  |  |  |  |  | Average |  |  |  |  |
Exercise |  |  | Number |  |  | Remaining |  |  | Exercise |  |  | Intrinsic |  |  | Number |  |  | Exercise |  |  | Intrinsic |
Price Range |  |  | Outstanding |  |  | Contractual |  |  | Price |  |  | Value |  |  | Exercisable |  |  | Price |  |  | Value |
$4.00 | - | 7.00 |  |  |  | 513,000 |  |  |  | 8.8 |  |  | $ | 4.51 |  |  | $ | 249,645 |  |  |  | 125,500 |  |  | $ | 4.94 |  |  | $ | 67,905 |
$7.01 | - | 10.00 |  |  |  | 20,000 |  |  |  | 5.6 |  |  | $ | 8.07 |  |  | $ | 0 |  |  |  | 20,000 |  |  | $ | 8.07 |  |  | $ | 0 |
$10.01 | - | 12.00 |  |  |  | 120,000 |  |  |  | 4.5 |  |  | $ | 10.52 |  |  | $ | 0 |  |  |  | 120,000 |  |  | $ | 10.52 |  |  | $ | 0 |
$12.01 | - | 15.00 |  |  |  | 25,000 |  |  |  | .1 |  |  | $ | 15.00 |  |  | $ | 0 |  |  |  | 25,000 |  |  | $ | 15.00 |  |  | $ | 0 |
For the nine months ended September 30, 2022, no options were exercised. As of September 30, 2022, there was $1.0 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 3.3 years. Restricted Stock Awards Pursuant to the Director Compensation plan approved on October 11, 2021, each director is entitled to Director Compensation for an Annual Equity Retainer in the amount of $40,000, to be automatically granted on the date of the Company’s annual meeting of shareholders. The directors may elect to receive payment in restricted stock, stock options or a combination thereof. During the three and nine months ended September 30, 2022, the Company’s directors received 32,000 shares of restricted stock with an estimated fair value of $160,000 of which 16,000 shares vested upon the date of grant on August 17, 2022 and the remaining 16,000 shares will vest on December 31, 2022. At September 30, 2022, there was $40,000 of unrecognized stock compensation expense associated with the restricted stock awards. Restricted Stock Units The following table summarizes activity related to outstanding restricted stock units for the nine months ended September 30, 2022:
|  |  |  |  |  | Weighted |
|  | Shares of |  |  | Average Grant |
|  | Restricted |  |  | Date Fair |
|  | Stock Units |  |  | Value |
Unvested outstanding at December 31, 2021 |  |  | 5,500 |  |  | $ | 4.82 |
Granted |  |  | - |  |  | $ | - |
Vested |  |  | (5,500 | ) |  | $ | 4.82 |
Forfeited or cancelled |  |  | - |  |  | $ | - |
Unvested outstanding at September 30, 2022 |  |  | - |  |  | $ | - |
The total fair value of vested restricted stock units was $3,458 for the nine months ended September 30, 2022. As of September 30, 2022, there was no unrecognized compensation costs related to restricted stock units.

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