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Note 6 - Stock-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

NOTE 6 — Stock-Based Compensation Plan

Stock-Based Compensation Program

The Company has one share-based compensation plan in effect in the two years presented: the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, and performance awards to employees, directors, and consultants of the Company. Upon ratification of the 2004 Plan by the shareholders in June 2004, shares in the 1995 Plan that had been reserved but not issued, as well as any shares issued that would otherwise return to the 1995 Plan as a result of termination of options or repurchase of shares, were added to the shares reserved for issuance under the 2004 Plan. The Company grants incentive stock options and restricted stock at an exercise price per share equal to the fair market value per share of common stock on the date of grant. The vesting and exercise provisions are determined by the Board of Directors, with a maximum term of ten years. The 2004 Plan expires on April 23, 2024.

The 2004 Plan provides for an annual increase in the number of shares authorized under the plan to be added on the first day of each fiscal year equal to the least amount of 400,000 shares, 4% of the outstanding shares on that date, or an amount as determined by the Board of Directors. On January 1, 2020 and 2019, a total of 240,707 and 235,324 additional shares, respectively, became available for grant from the 2004 Plan.

Stock-Based Compensation Information

The stock-based compensation expense included in the Company’s statements of income for the years ended December 31, 2020 and 2019, consisted of the following:

	Years Ended December 31,
Income Statement Classification	2020		2019
Cost of revenues	$	86,649	$	94,803
Research and development		137,537		151,121
Sales and marketing		121,802		121,633
General and administrative		161,063		152,334
	$	507,051	$	519,891

As of December 31, 2020, the remaining unamortized stock-based compensation expense was $935,882 and is expected to be amortized over a weighted average period of 2.61 years.

Stock Options – Stock option awards have an exercise price equal to the closing price on the date of grant, expire in ten years from the date of grant and vest over a four-year period at 25% per year. The Company calculates the value of each stock option grant, estimated on the date of grant, using binomial lattice option pricing model. The weighted-average estimated fair value of stock options granted during 2020 and 2019 was $0.50 and $1.08, respectively, using the following weighted-average assumptions:

	Years Ended December 31,
	2020			2019
Risk-free interest rate (%)		0.68	%		1.614	%
Dividend yield		—			—
Volatility factor		43.62	%		42.58	%
Expected option life (years)		7.4			7.2

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and volatility is based on the historical volatility of the Company’s stock price over the expected life of the option.

The table below presents the information related to stock option activity for the years ended December 31, 2020 and 2019:

	Years Ended December 31,
	2020		2019
Total intrinsic value of stock options exercised	$	167,882	$	16,568
Cash received from stock option exercises	$	168,065	$	23,314

The following summarizes stock option activity under the 2004 Plan as of and for the years ended December 31, 2020 and 2019:

	Outstanding Options
	Number of Shares			Weighted Average Price Per Share	Remaining Contractual Term (in years)		Intrinsic Value
Balance at December 31, 2018	2,374,124		$	2.54
Granted	551,256		$	2.20
Exercised	(24,494	)	$	0.95
Canceled	(508,100	)	$	2.92
Balance at December 31, 2019	2,392,786		$	2.40
Granted	37,000		$	1.08
Exercised	(100,239	)	$	1.68
Canceled	(334,741	)	$	2.84
Balance at December 31, 2019	1,994,806		$	2.42	5.50	$	690,769
Exercisable	1,602,695		$	2.34	4.75	$	603,382
Unvested	392,111		$	2.31	8.33	$	87,387

Stock options outstanding as of December 31, 2020 are summarized below:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options Outstanding	Weighted Average Remaining Life (Years)		Weighted Average Exercise Price	Number of Options Exercisable		Weighted Average Exercise Price
$0.95 - $1.25	352,081	3.25	$	1.06	325,873	$	1.06
$1.50 - $1.82	99,540	1.00	$	1.74	99,540	$	1.74
$1.89 - $2.27	456,891	5.17	$	2.07	368,771	$	2.11
$2.32 - $2.49	407,826	7.58	$	2.34	200,125	$	2.35
$2.50 - $2.75	241,188	5.33	$	2.71	241,188	$	2.71
$2.82 - $2.93	195,355	7.17	$	2.93	141,206	$	2.93
$3.10 - $3.88	73,400	6.00	$	3.69	71,600	$	3.70
$4.22 - $4.49	168,525	6.42	$	4.25	154,392	$	4.24
$0.95 - $4.49	1,994,806	5.50	$	2.42	1,602,695	$	2.34

As of December 31, 2020, the remaining unamortized stock option compensation expense was $383,720 and is expected to be amortized over a weighted average period of 1.92 years.

Restricted stock – The restricted stocks are issued to employees and consultants and are held in escrow by the Company until the shares vest on the schedule of 15% after year one, 20% after year two, 25% after year three and 40% after year four, subject to the employees and consultants being a continuing service provider on the vesting dates. If the service or employment is terminated, unvested shares revert to the Company. Shares are registered at grant, so share owners may vote at the annual stockholder meeting. Restricted stocks are granted at zero cost basis. Compensation cost of the restricted stocks is recognized on a straight-line basis over the 4-year vesting period.

The following summarizes information related to Restricted Stock activity under the 2004 Plan for the years ended December 31, 2020 and 2019:

	Number of Restricted Stocks	Weighted Average Price Per Share
Unvested as of December 31, 2018	—	—
Granted	127,871	$ 1.94
Vested	—	—
Forfeited	(17,800)	$ 1.90
Unvested as of December 31, 2019	110,071	$ 1.94
Granted	392,680	$ 1.50
Vested	(17,306)	$ 1.94
Forfeited	(43,245)	$ 1.60
Unvested as December 31, 2020	442,200	$ 1.58

As of December 31, 2020, the remaining unamortized restricted stock compensation expense was $552,162 and is expected to be amortized over a weighted average period of 3.10 years.