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StockBased Compensation

9 Months Ended

Sep. 30, 2020

Note 12: Stock-Based Compensation

From time to time, the Company grants stock option and restricted stock units awards to officers and employees and grants stock awards to directors as compensation for their service to the Company.

In November 2010, the Company adopted the 2010 Stock Incentive Plan (the “2010 Plan”) which was restated in its entirety in August 2018. As amended, up to 2,600,000 shares of common stock are available for issuance under the Plan. The Plan provides for the issuance of stock options and other stock-based awards. The 2010 Plan expired on September 14, 2020 (except as to options outstanding as of this date).

In April 2019, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”). Upon adoption of the 2019 Plan no additional awards were granted under the 2010 Plan. No more than 697,039 shares of common stock, plus the number of shares of common stock underlying any award granted under the 2010 Plan that expires, terminates, is canceled, or is forfeited shall be available for grant under the 2019 Plan. The Plan was amended in July 2020 to include an additional 1,025,000 stock options or other stock-based awards to be available for issuance. The Plan provides for the issuance of stock options and other stock-based awards. The Plan provides for the issuance of stock options and other stock-based awards. During the terms of the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards.

Stock Options

Stock option awards under the 2010 Plan and 2019 Plan (the “Plans”) have a 10-year maximum contractual term and, subject to the provisions regarding Ten Percent Shareholders, must be issued at an exercise price of not less than 100% of the fair market value of the common stock at the date of grant. The Plans are administered by the Board of Directors, which has the authority to determine to whom options may be granted, the period of exercise, and what other restrictions, if any, should apply. Vesting for awards granted to date under the Plans is principally over four years from the date of the grant, with 25% of the award vesting after one year and monthly vesting thereafter.

Option awards are valued based on the grant date fair value of the instruments, net of estimated forfeitures, using a Black-Scholes option pricing model with the following assumptions:

	Nine Months Ended
	September 30,
	2020	2019

Volatility	52%-56%	49% - 50%
Risk Free Interest Rate	0.37% - 1.66%	1.45% - 2.59%
Expected term	6.25 years	6.25 years

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2020, and 2019, was $5.11 and $6.43, respectively.

For grants prior to January 1, 2015, the volatility assumption was based on historical volatility of similar sized companies due to lack of historical data of the Company’s stock price. For all grants subsequent to January 1, 2015, the volatility assumption reflects the Company’s historic stock volatility for the period of February 1, 2014 forward, which is the date the Company’s stock began actively trading. The risk-free interest rate was determined based on treasury securities with maturities equal to the expected term of the underlying award. The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110.

Stock option awards are expensed on a straight-line basis over the requisite service period. During the three months ended September 30, 2020, and 2019, the Company recognized an expense of $0.34 million and $0.25 million, respectively, associated with stock option awards. During the nine months ended September 30, 2020, and 2019, the Company recognized an expense of $0.81 million and $0.75 million, respectively, associated with stock option awards. At September 30, 2020, future stock compensation expense associated with stock options (net of estimated forfeitures) not yet recognized was $2.40 million and will be recognized over a weighted average remaining vesting period of 2.63 years. The following summarizes stock option activity for the nine months ended September 30, 2020:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2019		1,470,406		$	7.30		7.5	$	6,604,461

Granted		475,605			9.90
Exercised		(38,445	)		4.77
Expired		(27,500	)		12.65
Forfeited		(268,100	)		11.79
Outstanding at September 30, 2020		1,611,966		$	7.29		7.2	$	6,590,764

Exercisable at September 30, 2020		932,180		$	5.86		6.1	$	5,085,646

The total intrinsic value of stock options exercised during the three months ended September 30, 2020, and 2019, were $0.23 million and $0 respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2020, and 2019, were $0.25 million and $1.43 million, respectively.

Restricted Stock Units

The 2019 Plan allows for the granting of Restricted Stock Units (“RSUs”). Under the 2019 Plan the Board of Directors has the authority to determine whom RSUs may be granted, the period of exercise, and what other restrictions, if any, should apply. RSUs have a value equal to the fair market value of an identical number of shares of Common Stock, which may, but need not, provide that such restricted award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for a period determined by the Board of Directors. Vesting for awards granted to date under the 2019 Plan is generally over four years from the date of the grant, with 25% of the award vesting after one year and monthly vesting thereafter.

RSUs are expensed on a straight-line basis over the requisite vesting period. During the three months ended September 30, 2020, and 2019, the Company recognized a net benefit of approximately $0.03 million related to forfeited RSU’s during the period and an expense of $0, respectively, associated with RSUs. During the nine months ended September 30, 2020, and 2019, the Company recognized expense of approximately $0.16 million and $0, respectively, associated with RSUs. At September 30, 2020, future stock compensation expense associated with RSUs (net of estimated forfeitures) not yet recognized was approximately $0.24 million and will be recognized over a weighted average remaining vesting period of 2.06 years. The following summarizes RSU activity for the nine month period ended September 30, 2020:

				Weighted
				Average
				Grant Date
	Number of			Fair Value
	Units			Per Share
Unvested at December 31, 2019		50,494		$	11.82

Granted		35,875			12.39
Vested		(10,159	)		12.39
Forfeited		(50,494	)		11.82
Unvested at September 30, 2020		25,716		$	12.39

Stock Awards

The 2019 Plan allows for the granting of Restricted Stock Awards (“RSAs”). Under the 2019 Plan the Board of Directors has the authority to determine whom RSAs may be granted and what other restrictions, if any, should apply. Non-employee Stock awards shares are generally immediately vested. Employee Stock award shares are vested principally over two years from the date of the grant, with 50% of the award vesting after one year and monthly vesting thereafter.

Stock awards are valued based on the closing price of our common stock on the date of grant, and compensation cost is recorded immediately if there is no vesting period or on a straight-line basis over the vesting period. During the three months ended September 30, 2020, and 2019, the Company recognized expense of approximately $0.08 million and $0.03 million, respectively, associated with Stock Awards. During the nine months ended September 30, 2020, and 2019, the Company recognized expense of approximately $0.17 million and $0.10 million, respectively, associated with Stock Awards. At September 30, 2020, future stock compensation expense associated with stock awards (net of estimated forfeitures) not yet recognized was approximately $0.08 million and will be recognized over a weighted average remaining vesting period of 1.5 years. The following summarizes Stock Award activity for the nine month period ended September 30, 2020:

				Weighted
				Average
				Grant Date
	Number of			Fair Value
	Units			Per Share
Unvested at December 31, 2019		-		$	-

Granted		27,419			9.72
Vested		(14,619	)		9.84
Forfeited		(1,222	)		9.57
Unvested at September 30, 2020		11,578		$	9.57