Accounting for Stock-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-Based Payment Arrangement [Abstract]

Accounting for Stock-Based Compensation

3. Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, which requires that compensation related to all stock-based awards be recognized in the condensed consolidated financial statements. Stock-based compensation cost is valued at fair value at the date of grant, and the grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718.

During 2021, the Company added a new incentive plan (the “2021 Omnibus Incentive Plan”). The 2021 Omnibus Incentive Plan provides a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders.

The aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which Awards may be granted under the 2021 Omnibus Incentive Plan shall not exceed 2,500,000 shares and is subject to any increase or decrease, which shares may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both.

During the quarters ended March 31, 2022 and 2021, the Company did not grant or issue any new Restricted Stock Awards (RSAs) under the 2021 Omnibus Incentive Plan. The Company recognized $179,000 and $0 in compensation expense related to its RSAs during the three-month period ended March 31, 2022 and 2021, respectively. As of March 31, 2022, there was $371,278 unrecognized compensation cost related to unvested RSAs compared to no unrecognized compensation costs related to unvested RSAs as of March 31, 2021.

During the quarter ended March 31, 2022, the Company granted 167,500 stock options under its 2015 Stock Incentive Plan (“2015 Plan”). The Company granted 65,000 options under the 2015 Plan during the three months ended March 31, 2021. The Company issued no options under its 2005 Stock Incentive Plan (the “2005 Plan”) during the three- month period ended March 31, 2022 and 2021, respectively.

During the quarter- ended as of March 31, 2022, 91,000 stock options were exercised under the 2005 Plan. During the quarter- ended as of March 31, 2021, 197,227 stock options were exercised under the 2005 Plan.

The following table summarizes the activities for the Company’s stock options for the three months ended March 31, 2022: 

	March 31, 2022
	Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of year		617,273		$	6.47
Granted		167,500			3.64
Exercised		(91,000	)		0.68
Forfeited		(35,000	)		6.33
Cancelled		–			–
Expired		(1,000	)		4.30
Outstanding at March 31, 2022		657,773		$	6.56
Options exercisable at March 31, 2022		234,613		$	2.82

The Company recognized compensation expense related to its stock option awards of $248,000 and $204,000, for the three months ended March 31, 2022, and 2021, respectively. As of March 31, 2022, there was $898,544 unrecognized compensation cost related to unvested stock options compared to $1,757,856 in unrecognized compensation costs related to unvested stock options as of March 31, 2021.

Valuation Assumptions

The fair values of employee and director option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

	For Three Months Ended March 31, 2022		For Three Months Ended March 31, 2021
Weighted average grant date fair value	$	3.34	$	13.88
Weighted average assumptions used:
Expected dividend yield		0.0%		0.0%
Risk-free interest rate		0.88%		0.67%
Expected volatility		133.0%		73.00%
Expected life (in years)		6.6		5.0

Expected volatility is based on historical volatility and in part on implied volatility. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Options granted to non-employees are valued using the fair market value on each measurement date of the option.