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Stock-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

NOTE 10. STOCK-BASED COMPENSATION

The Company recorded pretax compensation expense related to the grant of stock options and restricted stock issued of $498,356 and $405,579 for the three months ended September 30, 2020 and 2019 and $1,186,771 and $1,715,972 for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the Company had adopted seven separate stock option and restricted stock plans: (i) the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”), (ii) the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”), (iii) the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”), (iv) the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”), (v) the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”), (vi) the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”), (vii) the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”), (viii) the 2018 Stock Option and Restricted Stock Plan (the “2018 Plan”) and (ix) the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”). The 2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan and 2020 Plan are referred to as the “Plans.”

These Plans permit the grant of stock options or restricted stock to its employees, non-employee directors and others for up to a total of 5,675,000 shares of common stock. The 2005 Plan terminated during 2015 with 19,678 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2005 Plan that remain unexercised and outstanding as of September 30, 2020 total 7,563. The 2006 Plan terminated during 2016 with 25,849 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2006 Plan that remain unexercised and outstanding as of September 30, 2020 total 39,750. The 2007 Plan terminated during 2017 with 89,651 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2007 Plan that remain unexercised and outstanding as of September 30, 2020 total 5,000. The 2008 Plan terminated during 2018 with 9,249 shares not awarded or underlying options, which shares are now unavailable for issuance. Stock options granted under the 2008 Plan that remain unexercised and outstanding as of September 30, 2020 total 31,250.

Our Board of Directors adopted the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”) on September 30, 2020 and the Company’s stockholders approved the 2020 Plan at the Annual Meeting held on September 9, 2020. The 2020 Plan authorizes us to issue 1,500,000 shares of Common Stock upon exercise of options and grant of restricted stock awards. A total of 438,341 options and restricted stock have been granted under the 2020 Plan to date. The 2020 Plan also authorizes us to grant (i) to the key employees incentive stock options to purchase shares of Common Stock and non-qualified stock options to purchase shares of Common Stock and restricted stock awards and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock.

The Company believes that such awards better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards generally vesting based on the completion of continuous service and having ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The Company has registered all shares of common stock that are issuable under its Plans with the SEC, except for shares of Common Stock issuable under the 2020 Plan, which the Company expects to register prior to December 31, 2020. A total of 1,062,846 shares remained available for awards under the various Plans as of September 30, 2020.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.

Activity in the various Plans during the nine months ended September 30, 2020:

Options	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2019		589,125		$	3.74
Granted		255.000			2.09
Exercised		(1,875	)		4.16
Forfeited		(3,937	)		(12.14	)
Outstanding at September 30, 2020		838,313		$	3.20
Exercisable at September 30, 2020		669,563		$	3.48

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. The total estimated grant date fair value stock options issued during the nine months ended September 30, 2020 was $415,742. Following are certain estimates and assumptions utilized as of the issuance date to determine the grant-date fair value of the stock options issued during 2020:

Volatility – range		104	%
Risk-free rate		0.28	%
Contractual term		5.5 years
Exercise price	$	2.09

The Plans allow for the cashless exercise of stock options. This provision allows the option holder to surrender/cancel options with an intrinsic value equivalent to the purchase/exercise price of other options exercised. There were no shares surrendered pursuant to cashless exercises during the nine months ended September 30, 2020 and 2019.

At September 30, 2020, the aggregate intrinsic value of options outstanding was approximately $12,750 and the aggregate intrinsic value of options exercisable was approximately $4,313.

As of September 30, 2020, the unrecognized portion of stock compensation expense on all existing stock options was $275,123 which will be amortized to expense over the next seven months.

The following table summarizes the range of exercise prices and weighted average remaining contractual life for outstanding and exercisable options under the Company’s option plans as of September 30, 2020:

		Outstanding options				Exercisable options
Exercise price range		Number of options		Weighted average remaining contractual life		Number of options		Weighted average remaining contractual life

$	0.01 to $3.49		725,313		8.4 years		556,563		8.0 years
$	3.50 to $4.99		64,000		3.6 years		64,000		3.6 years
$	5.00 to $6.49		—		— years		—		— years
$	6.50 to $7.99		7,250		1.1 years		7,250		1.1 years
$	8.00 to $9.99		2,500		0.7 years		2,500		0.7 years
$	10.00 to $19.99		39,250		0.3 years		39,250		0.3 years

			838,313		7.6 years		669,563		7.0 years

Restricted stock grants. The Board of Directors has granted restricted stock awards under the Plans. Restricted stock awards are valued on the date of grant and have no purchase price for the recipient. Restricted stock awards typically vest over one to four years corresponding to anniversaries of the grant date. Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination of service to or employment with the Company, depending upon the circumstances of termination. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.

A summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2020 is as follows:

	Number of Restricted shares			Weighted average grant date fair value
Nonvested balance, January 1, 2020		514,875		$	2.97
Granted		846,591			1.02
Vested		(591,466	)		(1.77	)
Forfeited		(35,250	)		(1.84	)
Nonvested balance, September 30, 2020		734,750		$	1.75

The Company estimated the fair market value of these restricted stock grants based on the closing market price on the date of grant. As of September 30, 2020, there were $316,398 of total unrecognized compensation costs related to all remaining non-vested restricted stock grants, which will be amortized over the next 15 months in accordance with their respective vesting scale.

The nonvested balance of restricted stock vests as follows:

Years ended	Number of shares

2020 (October 1, 2020 through December 31, 2020)		13,125
2021		480,250
2022		241,375